Troy Sympson

You know that you need technology to compete in today’s fast-paced business world, but the problem is that you don’t necessarily understand the ever-changing technology. And you definitely don’t understand the tech-speak that service providers throw at you.

However, if you evaluate your business and determine exactly what you do and how you do it, all of the technology won’t seem so technological. And, if you work with a quality provider — one that emphasizes solutions and not just bells and whistles — your technology decisions will become even easier, says Laura Hetrick, a sales engineer with Time Warner Cable Business Class.

“When shopping for a business communication solution, identify your goals, make a priority list of those goals and determine your budget,” says Hetrick. “But, don’t fall into the trap that the lowest cost is always the best. Reliability is always more important than cost.”

There are a lot of service providers, so Hetrick recommends thoroughly interviewing at least three before you make any decisions. And before you buy anything, make sure that the provider will be able to offer the best solution for your business — today, tomorrow and into the future.

Smart Business spoke with Hetrick about business communication solutions, how to evaluate your needs and how to make sure you only buy what you truly need.

How can a business evaluate its technology needs?

First and foremost, make sure you are organized. Often, the people in a company who are responsible for purchasing technology are not the same people who are responsible for maintaining and using that technology. Make sure everyone is on the same page, and make sure you have buy-in at every level.

Also, have a clear, concise view of what you want and what you need. Define your priorities. What do you absolutely need, and what would just be nice to have? Look at your expenses: Where are you spending money, and why are you spending it? Are you getting value for what you’re paying?

Technology changes day by day, hour by hour and minute by minute. If you’re not getting exactly what you need, when you need it, you’re wasting more money than you think.

Finally, don’t get caught up in buzzwords. Just because you’re reading or hearing about something like VoIP doesn’t necessarily mean it’s right for your business.

Evaluate the cost, technology and productivity benefits before making a decision. Maybe the latest and greatest technology will change the way you do business, or maybe it will just be something cool your tech guys will play with.

What are the consequences of jumping into hot new technology without considering the implications?

It’s easy to get caught up in the latest and greatest technologies, but besides buying something you don’t really need, you could end up spending way more than you bargained for. You could buy a new technology or service, but if your servers and equipment aren’t prepared to handle it, you’re going to spend money on infrastructure upgrades.

By all means, improve your systems and upgrade your technology needs, but make sure the solutions you buy are scalable. Any solution you implement has to be effective and efficient from both a cost and usage perspective.

What other common missteps do companies make in the evaluation process?

People often put too much emphasis on dollars and cents. Yes, you have to be budget-conscious, but you get what you pay for. What good is saving a few dollars if the technology never works?

Dig deep when interviewing service providers. Ask for positive references, but also ask them to show how they took a negative customer experience and made it better, because it’s not if something will go wrong, it’s when something will go wrong. You need to make sure your provider will be able to quickly, effectively and efficiently fix any problems you might have.

You want someone who is reliable, responsive and helpful, not someone who will just pass the buck from person to person.

Once you’ve completed your evaluation, how do you implement the solution?

Start with a kick-off meeting with your vendors, including the ones you’re already using. If you’re outsourcing your IT, make sure that company is there, as well. Anyone and everyone who is involved has to understand your goals, expectations and timelines.

This is often the biggest challenge, but if you get everyone on the same page, the pieces of the puzzle will fit together and you’ll get the solution that you truly paid for.

What business communication solutions are popular right now?

Bandwidth is king. Everyone wants more bandwidth for less money. The more applications you run, both internally and externally, the more bandwidth you need. Anything from payroll processing to inventory management to having access for your telecommuting employees is bandwidth-intensive.

Ethernet-based Internet access and point-to-point access solutions support the increased need for bandwidth. Ethernet solutions allow users to extend local area networks to a wide area network environment utilizing the same technology; also users are able to increase bandwidth to support business needs without having to add more facilities from the service provider.

Consulting with a local expert in technology can help you evaluate your company’s needs and find the best solution for your company.

Laura Hetrick is a sales engineer with Time Warner Cable Business Class. Reach her at (216) 575-8016, ext. 3424, or Laura.Hetrick@twcable.com.

Risk management methodologies and techniques remain at the forefront in these challenging economic times.

Boards of directors are under increased pressure to identify and manage risks in a timely manner and quickly remediate any issues that may arise.

Active, involved board members possessing diverse skills can greatly assist firms in achieving risk mitigation. While securities laws mandate various director qualifications, including independence for audit committee members, there exists no specific requirement that boards contain directors with varied skill sets.

While this is not a requirement for boards, “a diverse board can allow directors to critically examine management assertions and shepherd the organization through crises that may arise,” says James P. Martin, managing director at Cendrowski Corporate Advisors.

Smart Business spoke with Martin about best practices for boards and their impact on risk mitigation.

What defines a great board member?

In my mind, a great board member is one who becomes genuinely immersed in the company, understanding not only its financials but also its operations and strategy. Many articles have been published encouraging board members to become more active participants in their firms.

However, for whatever reason, this is largely not the case. For instance, a recent study showed that more than 90 percent of directors have not interacted with employees outside executive ranks at firms they govern; more than 70 percent have not visited their firm’s production facilities.

By failing to do so, directors are depriving themselves of important insights into corporate policies, procedures and strategy. These insights might be particularly beneficial for smaller, private firms that really turn to board members for help and guidance. While it is important for all firms to have directors with a diverse array of skill sets, smaller firms especially benefit from diversity of ideas.

This diversity might afford a firm particular insight in the event of a crisis, such as the economic tsunami we’ve experienced over the past two years.

What does it mean to have a diverse board?

Board members must have diverse, but complementary, skill sets to effectively govern a firm and critically question information provided by management. While government and stock exchange regulations have mandated a financial expert on audit committees, boards should also include directors who are experts in operations, legal matters and risk management.

In possessing individuals with such diverse skill sets, boards will be better able to analyze management’s vision and plan for the future, as well as guide the company toward continued value creation for shareholders. Diverse skill sets should also be present on board committees in order to help incite healthy dialogue surrounding critical issues.

What recommendations do you have for those serving on audit committees?

The audit committee is one of the most — if not the most — important committees on the board. Its importance is paramount to the proper oversight of the company. However, the existence of an audit committee is not a sufficient condition for proper governance.

Enron, HealthSouth, Tyco and Adelphia Communications each had audit committees. Although audit committees today must include a financial expert and independent directors, I believe they also should include individuals with skills in areas other than accounting. For instance, a director with risk management expertise might be able to assist an audit committee in recognizing the warning signs of risks that lie ahead.

These risks can then be brought to and evaluated by the board as a whole.

What factors might influence a board’s ability to act on and evaluate information presented by management and internal committees?

Size is certainly one factor that affects board-level decision-making processes. When a board is too large, it sometimes becomes a case of too many cooks spoiling the broth. The larger the board, the more difficult it is for members to participate actively and engage in constructive discussions.

Many large companies have boards with 10 to 15 directors, while smaller, growth-oriented firms may have five or fewer members. There is, however, great variance in the size of boards that isn’t necessarily commensurate with the size of the underlying company. General Electric, for instance, has 16 directors. Apple Computer, a firm whose market capitalization is larger than GE’s, has only six directors, including CEO Steve Jobs.

While a large board allows directors to more concretely divide responsibilities, a large board can stifle meaningful dialogue. Smaller boards promote accountability and also help directors make swifter decisions in crises.

However, if a company has a small board, these individuals must hold a diverse array of skills in order to effectively shepherd the company. Small boards might also be more greatly influenced by persuasive CEOs seeking to impress their personal vision upon the company.

James P. Martin, CMA, CIA, CFE, CFD, CFFA, is a managing director of Cendrowski Corporate Advisors. Reach him at (866) 717-1607 or jpm@cendsel.com.

Risk management methodologies and techniques remain at the forefront in these challenging economic times.

Boards of directors are under increased pressure to identify and manage risks in a timely manner and quickly remediate any issues that may arise.

Active, involved board members possessing diverse skills can greatly assist firms in achieving risk mitigation. While securities laws mandate various director qualifications, including independence for audit committee members, there exists no specific requirement that boards contain directors with varied skill sets.

While this is not a requirement for boards, “a diverse board can allow directors to critically examine management assertions and shepherd the organization through crises that may arise,” says James P. Martin, managing director at Cendrowski Corporate Advisors.

Smart Business spoke with Martin about best practices for boards and their impact on risk mitigation.

What defines a great board member?

In my mind, a great board member is one who becomes genuinely immersed in the company, understanding not only its financials but also its operations and strategy. Many articles have been published encouraging board members to become more active participants in their firms.

However, for whatever reason, this is largely not the case. For instance, a recent study showed that more than 90 percent of directors have not interacted with employees outside executive ranks at firms they govern; more than 70 percent have not visited their firm’s production facilities.

By failing to do so, directors are depriving themselves of important insights into corporate policies, procedures and strategy. These insights might be particularly beneficial for smaller, private firms that really turn to board members for help and guidance. While it is important for all firms to have directors with a diverse array of skill sets, smaller firms especially benefit from diversity of ideas.

This diversity might afford a firm particular insight in the event of a crisis, such as the economic tsunami we’ve experienced over the past two years.

What does it mean to have a diverse board?

Board members must have diverse, but complementary, skill sets to effectively govern a firm and critically question information provided by management. While government and stock exchange regulations have mandated a financial expert on audit committees, boards should also include directors who are experts in operations, legal matters and risk management.

In possessing individuals with such diverse skill sets, boards will be better able to analyze management’s vision and plan for the future, as well as guide the company toward continued value creation for shareholders. Diverse skill sets should also be present on board committees in order to help incite healthy dialogue surrounding critical issues.

What recommendations do you have for those serving on audit committees?

The audit committee is one of the most — if not the most — important committees on the board. Its importance is paramount to the proper oversight of the company. However, the existence of an audit committee is not a sufficient condition for proper governance.

Enron, HealthSouth, Tyco and Adelphia Communications each had audit committees. Although audit committees today must include a financial expert and independent directors, I believe they also should include individuals with skills in areas other than accounting. For instance, a director with risk management expertise might be able to assist an audit committee in recognizing the warning signs of risks that lie ahead.

These risks can then be brought to and evaluated by the board as a whole.

What factors might influence a board’s ability to act on and evaluate information presented by management and internal committees?

Size is certainly one factor that affects board-level decision-making processes. When a board is too large, it sometimes becomes a case of too many cooks spoiling the broth. The larger the board, the more difficult it is for members to participate actively and engage in constructive discussions.

Many large companies have boards with 10 to 15 directors, while smaller, growth-oriented firms may have five or fewer members. There is, however, great variance in the size of boards that isn’t necessarily commensurate with the size of the underlying company. General Electric, for instance, has 16 directors. Apple Computer, a firm whose market capitalization is larger than GE’s, has only six directors, including CEO Steve Jobs.

While a large board allows directors to more concretely divide responsibilities, a large board can stifle meaningful dialogue. Smaller boards promote accountability and also help directors make swifter decisions in crises.

However, if a company has a small board, these individuals must hold a diverse array of skills in order to effectively shepherd the company. Small boards might also be more greatly influenced by persuasive CEOs seeking to impress their personal vision upon the company.

James P. Martin, CMA, CIA, CFE, CFD, CFFA, is a managing director of Cendrowski Corporate Advisors. Reach him at (866) 717-1607 or jpm@cendsel.com.

Despite a rebounding economy and renewed hope, the national unemployment rate is still around 9.7 percent. In Georgia, the unemployment rate is 10.5 percent, and April 2010 is the 29th consecutive month that the state’s rate has been higher than the national average.

Needless to say, this has created a very large labor pool. Add in the fact that more and more qualified professionals are being added to that labor pool every day due to budget cuts and layoffs, and you’ve got a lot of good people looking for work.

“More and more, people are willing to take jobs that they maybe wouldn’t have in the past, and they’re definitely willing to take less money or fewer benefits,” says Melissa Hulsey, president and CEO of Ashton Staffing. “This gives companies great opportunities to get more bang for their buck when hiring.”

Still, these skilled people are hard to find. Many of them turn to staffing firms, which means now is the time to take advantage of the people and services a quality staffing firm can offer.

Smart Business spoke with Hulsey about temporary labor, how it can benefit your organization and the common misperceptions that come with hiring “temps.”

Why is now a good time to utilize temporary labor?

The long-term cost of employment is uncertain at best. Companies are often less willing to commit to a person full time because they can’t plan long term what the total cost of that employee will be. Among other things, there are questions about the Federal Insurance Contributions Act (FICA) tax. Will it stay at 7.65 percent, or will it go up?

Temporary labor doesn’t have those concerns; there’s no commitment and you’ll know exactly what the cost is upfront. You get the staffing you need without the headaches and the hassles.

What benefits come with temporary labor?

No. 1, the company saves money. Employers have to cover taxes, unemployment, health care and workers’ compensation, just to name a few. And all of those costs are projected to go up in the near future. Temporary labor helps alleviate that, since the staffing agency is the one that takes on those costs. Also, if you’ve got a lot of employees working overtime, you can hire temps to fill in, without the added cost of overtime wages.

Temporary labor also saves you time. The staffing firm does all the interviewing, screening, skills testing and advertising. You just call up the firm, tell them what you need and they find the right person for the job.

Another benefit is increased flexibility. You can hire more people at peak times and pare your staff down when business is slower. Nowadays, you can bring in highly skilled temps to replace key positions that may have been eliminated or downsized. For instance, you can find a temporary director of HR to come in a few days a week to take care of any administrative tasks you may have.

Finally, temporary labor reduces a company’s risk. Bringing in help takes the pressure off of your full-time employees, reducing accidents and absenteeism and preventing burnout. With companies paring down and employees taking on increasing workloads, burnout has become an unfortunate trend. It’s true that your staff is your greatest cost, but it’s also your greatest asset. It makes sense to do whatever you can to protect that asset.

What potential pitfalls should companies be aware of when using temporary labor?

First of all, don’t just look online and call the first staffing agency you find. Compare and interview staffing agencies just like you would potential employees. Make sure that the staffing agency matches your culture, understands your needs and goals and will represent your company the way you want it to.

Also, make sure you know all of the costs involved upfront, particularly the ones that come when you want to hire the person after their temporary trial is up; sometimes a conversion fee applies.

Finally, make sure you have a system in place to measure the performance of the temporary employees. Find out whether or not the temp fits in as soon as possible. The sooner you let the staffing agency know about issues, the sooner it can get you another worker.

So, how can you ensure that you’re getting the right talent?

The key is communication. Clearly define your needs upfront. Give the staffing agency as much information as possible: what specific skills you need, how your company culture works, what kind of personality you’re looking for, the goals of the position, how long the temp will be employed, if it will be a temp-to-hire situation, etc. The more the staffing agency knows, the better it will be at finding you the people you need.

What are the common myths of temporary staffing?

There’s a stigma attached to temporary labor that it’s only unskilled, unhireable people. But the fact is there are thousands of highly skilled, highly trained people looking for work. Not only that, more and more people, particularly younger ones, only want to work on a temporary basis, as it offers them a better work-life balance.

Another myth is that it’s more expensive to utilize a staffing firm than just hiring on your own. With a staffing firm you know what the costs are upfront and you can always control those costs. That cannot be said about hiring an employee yourself.

Melissa Hulsey is president and CEO of Ashton Staffing. Reach her at (770) 419-1776 or mhulsey@ashtonstaffing.com.

If you’re spending too much time traveling to and from your bank — not to mention the time spent parking and waiting in line to make your business’s deposits — you’re wasting more than time. You’re wasting money and valuable company resources.

And don’t think it’s any different if you send someone else — many times when you send employees in your place, they don’t just go to the bank, they also run a few errands of their own.

But you can streamline your processes, saving both trips to the bank and money, by using remote deposit capture, an online banking function that allows businesses to scan checks and then transfer the images electronically to the bank for posting and clearing.

“Besides saving you time, remote deposit capture helps you maximize productivity in the office,” says Heather Levingston, a vice president and business deposit consultant with Wells Fargo Bank. “Plus, it’s safer. Instead of having your employees exposed as they travel to the bank with checks, the bank processes your hard-earned funds.”

With checks you can deposit at your desktop, key personnel does not have to leave to get to the bank by 3 p.m. or 4 p.m.

Smart Business spoke to Levingston about remote deposit capture, how it works and how it can benefit your company.

How does the remote deposit capture process work?

Once you start the remote deposit capture program with your bank, you’ll receive a scanner, which you’ll use to scan customer checks as your business receives them. Once a check is scanned, an electronic file is sent to your bank, and the bank processes the check.

The original checks never leave your business and should be destroyed after a certain period of time. The images, however, remain available to you via an online system, and you’ll have access to them for any customer service inquiries or audits.

How can remote deposit capture improve recordkeeping, increase productivity and reduce costs?

Everything is electronically filed and stored, so there’s less of a chance for human error. The remote deposit capture system will make sure that deposits balance before the process is completed, which further decreases errors.

If your company has more than one location, each location can scan the checks it receives and deposit them into a single account at one bank. Therefore, the owner will always be able to see all the images deposited into that account from multiple locations. Plus, audits will be less burdensome because information is readily available and easily accessible.

Again, it increases productivity and reduces costs by saving the time and expense of having to make trips to the bank, and the owner can use his or her time and money more productively.

Another benefit comes from accelerating the clearing process, which speeds up cash flow and lessens the amount of time you’re waiting for the funds to be available.

Are there any downsides to remote deposit capture?

There is some potential risk for insider fraud, but there are ways to mitigate it. Typically, remote deposit capture services prevent problems or issues with insider fraud within a company, unless all access is assigned to one individual and he or she has full control of the information and transaction initiation. It’s important to have a separation of duties to reduce the risk of fraud.

Also, banks usually provide training on how to use the system and the best practices to reduce fraud. They will also provide you with a contract defining who is responsible for what. During the time frame that you are responsible for the physical checks, make sure you have a policy about where you store them and how you destroy them.

Is there a risk of consumers’ personal information being compromised with this process?

A consumer’s checking account number is on the check whether the check is taken to a bank or scanned at a remote location. All programs are encrypted and password protected to ensure security and protection of information. The bank’s contract usually defines how the physical checks should be stored and then destroyed after a certain period of time.

Does using remote deposit capture require a financial investment?

Yes. There is the cost to rent or purchase the scanner and there may be some per-item costs, but they tend to be lower than when presenting paper. For most businesses, there is a cost savings with using remote deposit capture.

The cost of scanners is similar to the cost of a modest PC or copier, and there are minimal increases in operating costs in most cases. The product can pay for itself very quickly by increasing productivity and decreasing transportation costs.

The product also may speed up your cash inflow because it allows you to conveniently make deposits every day, providing you quicker access to your money, which, in turn, may reduce your borrowing costs or increase your interest income.

Heather Levingston is a vice president and business deposit consultant with Wells Fargo Bank. Reach her at (713) 206-4949 or Heather.M.Levingston@wellsfargo.com.

Thursday, 11 March 2010 05:47

Beating the economy and taking care of home

Protecting your clients, customers and employees during difficult economic times is something many companies talk about doing, especially in this day and age. The sad reality, however, is that this type of talk is just that: all talk and no action.

But accounting firm Ernst & Young LLP isn’t just talk. Not only is the company taking care of its clients and employees during these tough times, it’s also doing its part to revitalize the city it was founded in, Cleveland, Ohio.

According to Don Misheff, the Northeast Ohio managing partner of Ernst & Young, the company and its 1,200 employees will leave its current downtown location in the Huntington Building and move to the Flats in 2011.

The much-maligned Flats, once the focal point of downtown Cleveland, went from the entertainment Mecca of Ohio in the 1990s to a deteriorated ghost town in the 2000s. However, local developers are leading a new charge to convert the waterfront area into a bustling neighborhood filled with housing, offices, shops and restaurants. The new Ernst & Young building will be a landmark building and one of the crown jewels of the revitalization.

“We wanted to be a catalyst to the first renovation of downtown Cleveland in a long time,” Misheff says. “We were founded in Cleveland in 1903. We’re loyal to our city and want to continue our legacy here.”

Taking care of your own

Besides being at the forefront of the revitalization of downtown Cleveland, Ernst & Young also does all it can to take care of its clients and employees. No. 1, says Misheff, protect your foundation in a difficult economy and make sure you don’t lose any clients.

“It’s all about service, service, service,” Misheff says. “Deliver the highest quality of service you can. Be loyal and proactive with clients. Maybe that means you have to take a hit on your fees, but that’s OK. You’re in it for the long haul.”

Doing so can only lead to growth, says Misheff. Plus, your clients will appreciate it and thus be more likely to send other business your way.

“Focus on the short term but still think long term,” Misheff says.

Focusing on clients is one thing, but how do you continue to motivate and encourage employees during tough times? With low morale and people worrying about their jobs, families and futures, this is no easy task.

“Treat people fairly, treat them with respect and treat them with as much loyalty as you can,” Misheff says.

Encourage people that the hard times will end and that there will be opportunities in the future. Bottom line, stay in the game and really take care of your people.  

Related content

Don Misheff discussing the importance of a diverse culture.

Don Misheff on how he builds up his employees and client base at Ernst & Young by never being afraid to admit a mistake.

Find out more about the Ernst & Young Strategic Growth Forum 2009.

Executive Editor Dustin S. Klein conducted several question-and-answer sessions with past Entrepreneur Of The Year award winners and Growth Forum panelists, including:

Howard Schultz, CEO of Starbucks Corp.

Lynn Elsenhans, chairman and CEO of Sunoco Inc.

Chris Dalton, co-founder, president and CEO of Acquity Group LLC

Mervin Dunn, president and CEO of Commercial Vehicle Group Inc.

Pamela Chambers O’Rourke, founder, president and CEO of 850-employee ICON Information Consultants LP

Celeste Ford, founder, chairman and CEO of Stellar Solutions Inc.

Shelly Lazarus, chairman of Ogilvy & Mather Worldwide

Robert Klein, founder and CEO of Safeguard Properties

Do you know a company that might be a good fit for the 2010 Ernst & Young Entrepreneur Of The Year program? Contact Caroline Calfee at ccalfee@sbnonline.com

 

Tuesday, 26 January 2010 19:00

An online world

Nearly every business uses the Internet, and one of the most popular Internet tools is online banking.

Most business leaders are already using online banking services to review transaction histories, cashed checks and deposits, but online banking offers much more than just account history. However, many business owners are not taking advantage of the more sophisticated online banking services, such as online bill payment, payroll and wire transfers, and stop-payment requests.

“Whatever your daily business needs may be — loan payments, bill pay, ACH, wire transfers, etc. — they can usually be done via online banking,” says Darlene Nowak-Baker, executive vice president and lending manager with First Place Bank. “You can streamline your processes, and bank whenever and wherever you want to.”

Some business leaders may be leery of conducting these transactions online rather than in person, but while the tools are high-tech, the online systems are user-friendly and safe. If you can navigate the Internet or point-and-click your way through the Web, you’ll have no problem using online banking.

The key is to know what services you need and whether your bank offers those services.

Smart Business spoke with Nowak-Baker about online banking and how your business can get the most bang for your online banking buck.

What are the benefits of online banking?

No. 1, it’s a great time saver. There are no more trips to the bank and no more waiting in line. Your time is now free to focus on the bottom line. Also, online access to transaction history means no more waiting for voice mail and automatic response systems typical of most banks.

While these customer service offerings are convenient, they also consume more time than simply logging on to an online account to review records.

Online banking also makes paying bills and vendors easier. Rather than stocking paper checks, approving and verifying each check for accurate payment information and then expediting the check via mail or messenger, you can point, click and pay. Or, you can set up recurring payments by creating a file for each vendor with information including the payee, address and dollar amount.

Online banking tools will automatically pay the bill on time. If you need to change dollar amounts for each pay period, you easily can re-enter the dollar amount. Because these checks are produced and distributed electronically, there is less chance of fraud. Plus, you eliminate the expense of purchase order checks and further limit access to your checking account because you decrease the number of checks written each month.

Also, you can view transaction histories online and view and print images of checks written and deposited. Many banks charge customers who request cancelled checks. You can avoid fees and still feed your files with printed versions of checks through online banking.

View images of checks — front and back — and either download them to save on disc or print hard copies.

How are disputes handled?

First, ensure that a bank has customer support readily available. Find out what the estimated turnaround time is for e-mail communication and how long telephone callers are typically placed on hold.

Make sure you know if there are charges for telephone assistance. Your bank will walk you through its dispute-handling processes.

How do you know that there is ample security in place?

Find out what security measures the bank employs, how often it tracks online activity and what causes it to raise a red flag. Make sure secure areas of the bank’s Web site are password-protected and are labeled secure documents.

Banks have integrated a high level of security into Internet banking. Security measures include unique user identification codes and passwords, as well as 128-bit encryption that scrambles information before it is sent, and then decodes and processes it when it reaches its destination.

Online banking is safe and secure, and it provides users with transaction records they can print and retain for reference. Also, online tools provide clear, electronic records of who makes account changes and transactions, as well as when someone logs on to view transaction history. ??

What kind of fees are typically involved in online banking?

This will vary from bank to bank, but they are generally minimal, if there are any at all. Before signing up for an account, understand the monthly fees, as well as any miscellaneous fees that may apply, such as returned check fees.

Will banks ever become Internet-only, or will there always be a place for bricks-and-mortar banks?

I think that if there’s a financial institution that isn’t customer-service-oriented, it could become Internet-only. However, banking is a personal relationship.

Even though online banking is great, there will always be a place for face-to-face communication and problem solving. I can’t imagine a day where there are no more physical bank branches.

Darlene Nowak-Baker is an executive vice president and lending manager with First Place Bank. Reach her at (248) 358-6403 or DNowak-Baker@fpfc.net.

Tuesday, 26 January 2010 19:00

The right buys

Now that much of the smoke has cleared and the economy is slowly righting itself, the mergers and acquisitions (M&A) arena is beginning to pick up.

However, before beginning the bidding process for potential targets, acquiring firms must be aware of several business valuation pitfalls that might doom an acquisition.

“With mergers and acquisitions rising again within the U.S., it appears that the economy is on the mend,” says Adam Wadecki, manager of operations at Cendrowski Corporate Advisors LLC. “However, acquirers must be careful not to overpay for target firms as they begin the bidding process. The use of sound business valuation assumptions can help acquirers achieve this goal.”

Comprehensive business valuations can afford acquiring firms a relevant and reliable picture of a target’s growth, strengths and weaknesses, while providing a foundation that will help develop realistic post-acquisition strategic objectives.

Smart Business spoke with Wadecki about issues acquiring firms should look for in performing valuations and how to mitigate these issues.

What issues should acquirers watch for when pursuing target firms?

It’s vital for acquirers to understand how a potential target company earns its profit and to know if that earnings stream will continue. Sometimes, a highly profitable division may have been sold, or a competitor may have gained the upper hand in the marketplace with new technology.

If margins or revenue will be impacted in the future, an analyst won’t perceive that information by looking at past or current financial statements — it requires rather active due diligence. Acquirers also need to know if the target has a consistent, stable customer base, or if there have been one-time, large orders, inventory purchases, or nonoperational gains that have distorted earnings.

It’s highly important for acquiring firms to understand the true status of the firm’s operations absent any accounting or non-operational distortions. While financial ratios can tell part of the story, executives of the acquiring firm should examine first-hand the target firm’s operations and analyze its modus operandi. They should estimate the amount of time it will take to standardize accounting, inventory and finance systems across firms, as well as whether or not the firms’ cultures are compatible.

How might acquisition targets be valued?

There are generally three approaches to valuation: the income, market and asset-based approaches. The income-based approach encompasses discounted cash flow models and their many different forms. In a market-based approach, precedent transaction multiples are generally used, while an asset-based approach necessitates valuing all assets of a business separately, then aggregating them to arrive at a total value.

Valuation professionals look for convergence among several different approaches when valuing a business, most often using the income and market approaches.

When using the market approach, how should appropriate precedent transactions be selected?

Ideally, one would be able to find numerous ‘pure-play’ comparable companies when performing a market-based valuation. However, in some instances, pure-play companies may simply not exist. When this is the case, valuation professionals should select from a more diverse basket of comparable companies, including firms with similar revenue, cost structure, downstream customers, upstream suppliers and geographic locations.

This larger list of firms can then be filtered to arrive at an appropriate list of comparable companies.

When using the income approach, how should an appropriate cost of capital be determined?

When valuing a target, it’s important to use a cost of capital commensurate with the riskiness of the project itself; the acquiring firm’s cost of capital should not be used in the valuation. In order to estimate an appropriate cost of capital, the acquiring firm must estimate the target’s cost of debt and cost of equity capital.

The cost of debt can be estimated using interest rates obtained by the firm or firms with similar credit ratings. The cost of equity, however, is significantly more complex.

Professionals must be sure that they take into account the target’s liquidity, organizational structure, geographic location and other risk-dependent factors when deriving this figure.

How should potential synergies be incorporated into the valuation?

Ideally, an acquiring firm should not pay for synergies — it should only pay for the value of the target as a standalone entity. However, synergies should nonetheless be estimated in order to understand the benefits that the acquirer can reap from the target firm through the acquisition.

For publicly traded entities, it might also be advantageous to estimate the amount of pretax synergies necessary for the acquisition to be an accretive transaction rather than a dilutive one. Such an analysis can help public company managers ensure a potential acquisition will not negatively impact the firm’s stock price.

ADAM WADECKI is manager of operations for Cendrowski Corporate Advisors LLC. Reach him at aaw@cendsel.com or (866) 717-1607, or visit the company’s Web site at www.cca-advisors.com.

Wednesday, 25 November 2009 19:00

Gifting and transferring

With depressed valuations and advantageous capital gains rates, now is an ideal time to transfer all or part of your business to the next generation.

“There are several techniques that estate planners can use in order to accomplish transfers of interest, and they are all based on taking advantage of the current tax and economic environments,” says John T. Alfonsi, CPA/ABV/CFF, CFE, CVA, a managing director of Cendrowski Corporate Advisors LLC.

Smart Business spoke with Alfonsi about the current tax environment and why now is an opportune time to gift or transfer your business.

What is happening in the area of estate tax reform?

As it stands right now, the estate tax is going to be repealed for 2010, meaning that when people die, their estate will not owe any estate tax. For 2009, there is a $3.5 million estate tax exclusion — the first $3.5 million is tax-free and anything above that is taxable. In 2011, it is expected that there will be a $1 million estate tax exclusion and a maximum 60 percent tax rate (including surcharges).

Again, this is all being discussed and hashed out right now. The majority of pundits believe that we won’t have a zero percent estate tax in 2010. We won’t go back to where we were before, though; some kind of happy medium will be found.

How will gifting be affected by estate tax reform?

Right now, the annual gift tax exclusion is $13,000 per person, per year, and it looks like it will remain that way through 2010. Included in the $3.5 million estate tax exclusion for 2009 is a $1 million lifetime gift tax exclusion. So people can take advantage of that $1 million exclusion and still have $2.5 million left over to avoid or mitigate estate tax.

Also, part of estate tax reform could include the elimination of discounts when calculating the fair market value of closely held businesses. Typically, discounts are given due to a lack of marketability or a lack of control. If you were gifting a minority interest in a business, those discounts could have been significant and reduced the value, which would have allowed you to gift away more or not use as much of the gift tax exclusion.

With the possibility of those discounts being taken away, it’s best that you take care of your gifting now, while you can still get the discounts. If you do take advantage of these discounts, make sure they are documented and calculated by a valuation professional.

How do capital gains rates and interest rates tie into all of this?

For 2009-10, the maximum long-term capital gains rate is going to be somewhere in the zero to 15 percent range. In 2011, the Bush tax cuts will expire, and the 15 percent rate will increase to 20 percent. Depending on which tax bracket you are in for 2009-10, you could see significant tax savings by selling all or part of your company in those years, rather than waiting to do so in 2011.

In addition, interest rates are extremely low right now — the short-term rate (any obligation or note with a term equal to or less than three years) is less than 1 percent, the mid-term rate (greater than three years or less than or equal to nine years) is right around 2.5 percent, and the long-term rate (anything greater than nine years) is 4 percent. The combination of a depressed economy, low interest rates, impending estate tax reform and increased capital gains rates is creating a great opportunity to transfer all or a portion of a business to a new owner.

What are the other benefits of transferring a business now?

From a gifting perspective, taking advantage of the $1 million lifetime gift tax exclusion, depressed valuations and the $13,000 annual gift tax exclusion means you can transfer more of your business now than you could in the past, as well as in the future when valuations increase. With the long-term capital gains rates being at zero to 15 percent, you can structure a gift or a transfer as a sale of the interest, thus taking advantage of the low tax liability and taking the burden away from future generations.

Low interest rates likewise provide opportunities for intrafamily transfers as well as the use of grantor remainder annuity and grantor remainder income trusts. As important as lower capital gains rates and interest rates are, the current economic climate provides another incentive to transfer. Transferring business interests before an economic recovery results in an increased value of such businesses can save estate tax, as well. At this point, you can transfer or gift assets at almost cost.

What are the pitfalls to watch out for?

There are always issues that come up when transferring or gifting a business. You’re not necessarily giving up control of your business, but you are at least giving up a piece of your business interests. This is why people need to balance their estate tax goals with their business goals and their personal issues.

Quite simply, many people prefer not to give up anything and are willing to pay a higher estate tax. But, if you want to take advantage of the current environment and reduce estate taxes, a properly structured gift or transfer can be a valuable asset. Besides offering great tax benefits, a gift or a transfer could help you save money now, rather than having it all sorted out after your death.

You never know what is going to happen in life. Therefore, keep your estate plan flexible. Plan for what you know now, but maintain the ability to adapt if and when tax laws change.

John T. Alfonsi, CPA/ABV/CFF, CFE, CVA, is a managing director of Cendrowski Corporate Advisors LLC. Reach him at (866) 717-1607 or jta@cendsel.com.

Friday, 25 September 2009 20:00

Giving back

Every business owner wants to make an impact and leave behind a strong legacy. One of the best ways to do that is to not only create a strong company but to also consider creating a charitable foundation.

A charitable foundation gives you an opportunity to influence your community, in terms of where you place your money, how you make your grants and which organizations you serve and support. Take, for example, Tecumseh, Michigan. It’s not a town many people have heard of, but it’s consistently voted one of the top 100 places to live in the country. A big reason for that is the philanthropic work of Kenneth G. Herrick, who founded Tecumseh Products Co. and created The Herrick Foundation, which is one of the largest charitable foundations in Michigan.

Among other things, Herrick gave to libraries, museums, schools, human service agencies and health care providers.

“During his lifetime and since his passing, Herrick was a significant philanthropist, helping to shape and grow the community of Tecumseh,” says Gregory A. Schupra, the vice president and group manager for the Charitable Services Group at Comerica Bank. “Like Herrick, you too can perpetuate your legacy and affect the quality of life in your community for generations through a charitable foundation.”

Smart Business spoke with Schupra about charitable foundations, how to set one up and what you need to know when doing so.

Why should business owners establish a charitable foundation as a charitable trust as opposed to setting up a nonprofit corporation?

There are two main reasons: One, with a charitable trust, you can protect and preserve your charitable intents more easily. Two, you can protect and preserve your family’s involvement with the foundation as well so that it does not get ‘hijacked’ by outsiders.

When you set up a nonprofit — no matter what state you’re in — the trustees or directors can amend the articles and bylaws of the nonprofit to change the charitable purpose without anyone knowing or having any say-so. However, if you have a charitable trust, the trustees or directors would have to go to court to make a change like that, at which point it would be up for public debate.

Another aspect of a nonprofit is that trustees and directors are self-appointing, so, if they keep appointing nonfamily members to the nonprofit, the family can lose all authority and control. You could put family protection into the articles and bylaws of the nonprofit, but it’s a lot easier to have a charitable trust with certain requirements that family members have to be involved.

What tax implications should business owners be aware of when creating charitable foundations during their lifetimes?

The thing to keep in mind is that tax law is different for gifts from people’s estates as opposed to gifts given to a foundation during a lifetime. For example, if you have a piece of real estate — which many business owners do — and you give that real estate to your foundation during your lifetime, you can only deduct the cost basis. On the other hand, if you leave that real estate to your foundation in your estate, your estate can deduct the full fair market value. It’s the same for closely held stocks. If you give during lifetime, deduction is only on a cost basis; if you leave through your estate, deduction is full fair market value.

How should the foundation’s assets be invested?

First, the foundation has to determine what its grant-making and spending polices are going to be. If it’s going to grant out a higher percentage of its assets each year, then the assets should probably be invested in more fixed-income vehicles, such as bonds and treasury bills, in order to preserve more value. On the other hand, if the foundation is going to be giving, say, only 5 percent a year — which is the required minimum by law — then the asset allocation should be in longer-term investments like equities.

If you asked this question a year ago, I’d say that a perpetual long-term charitable foundation should have an asset allocation of 60 percent equity and 40 percent fixed income. But, because of the paradigm shift in the economic markets, it’s now 40-50 percent equity and 50-60 percent fixed income. It’s likely to stay like that for the next three to five years.

Bottom line, you want to create an asset allocation that fits your spending needs and the short- and long-term objectives of the foundation.

When looking to set up a charitable foundation, what are some other key considerations?

The key is to ask yourself the following four questions:

  • Do you want to conduct charitable activities (educate, feed the homeless, etc.) or make grants to organizations that conduct the charitable activities?
  • Do you want to establish during your lifetime or testamentary?
  • Do you want to support specific charities, particular charitable purposes or geographic areas?
  • Do you want your grant making to be competitive or noncompetitive?

There are many philanthropic options for business owners, and those options might seem complex, but if you work with professional advisers who know what to do and how to do it, you can have a great experience, both during your lifetime and by perpetuating your legacy over time.

Gregory A. Schupra is the vice president and group manager for the Charitable Services Group at Comerica Bank. Reach him at (734) 930-2417 or gaschupra@comerica.com.