When choosing a staffing agency, culture, size, location, industries served and services provided are factors to consider. There are many to choose from in any given area, so you need to do your research to ensure you choose the right one to fit your needs.
“The biggest thing is being open to the idea,” says Sarah Finch, business development manager with The Daniel Group. “There are so many advantages to using a staffing company because, bottom line, the company’s success is all about the type of people you have working for you. And whether the company is overloaded with openings or is having difficulty filling niche positions, staffing firms are here to help for those reasons.”
Staffing agencies can help a company gather all the necessary details to determine its hiring needs, then determine which candidates fit that company’s culture, work environment, industry and position.
Smart Business spoke with Finch about how to choose the best staffing agency for your needs.
What is important to consider when choosing a staffing agency?
Before you think about which staffing agency to call on and which you are going to use, you have to define your needs to better determine how an agency can help you.
For example, consider whether you would prefer to hire a candidate based on education or experience. Many positions require either a bachelor’s or master’s degree. However, for example, for a lot of IT jobs, a bachelor’s degree isn’t always as significant because many who work in the field have a niche vocational, associate’s or technical degree, in addition to years of experience. Decide first what you’re going to require because you may pass up many excellent candidates just because they don’t have a bachelor’s degree.
Also determine what projects you have upcoming. Many staffing companies can help you solve hiring needs on a per project basis.
Location is also a consideration. Some companies prefer to use local staffing companies when looking for people from that area, as opposed to national agencies that aren’t rooted in those states or don’t have the capability to meet the candidates in person.
You should also look for a staffing company that will consider your business’s culture when selecting candidates. It can matter whether you have a huge corporate environment as opposed to a smaller mom-and-pop shop, where personality might be just as important as skill set. That can also apply to your decision when selecting what kind of staffing company you want to work with. Do you want a boutique firm or a big national firm?
Also consider the level of customer service you expect. Getting the right sales rep or recruiter who returns your phone calls, who is able to get in touch with candidates quickly and who can provide you with strong resumes soon after receiving an order is key.
How can a company benefit by working with an agency that specializes in a specific field?
Specialized agencies have recruiters who have worked in a specific industry and with those candidates for some time, which means they have a large pipeline of people to choose from. This can be a benefit because the candidates, while possibly not looking for a position themselves, often know someone with similar experience who is.
In addition, an agency that specializes becomes an expert in that field by keeping up with developing trends, mergers and acquisitions, and hiring trends. An agency with that industry insight can quickly become more of a consultant to its clients than just a staffing agency. When the market for candidates gets slim in a particular industry, it’s good to have a recruiter with experience because candidates who have been placed by these recruiters often return when they’re ready to move on.
What services can a staffing agency provide?
Some staffing agencies offer candidates who can work in different capacities, including temp-to-hire and temporary. And while companies don’t have to take advantage of all of these, some prefer to have the choice.
Contract hires fill a position temporarily. You could have these employees for a day, a week or for years, but this is typically used for project-based work. The employee’s payroll is handled through the staffing agency and the agency provides an invoice to the client.
Temp-to-hire means bringing in a candidate with the intention of transitioning that person into the position full time. Companies will use this service when they want to fill a position permanently but first want to try the person out. The staffing agency will set a time limit that the candidate will work as a contractor, and payroll and benefits are handled through the agency. Before the candidate has completed the predetermined amount of hours, the client can decide to hire or not.
In direct hire, the staffing agency qualifies candidates and passes them on to the client. The agency has nothing to do with payroll, benefits or time sheets and will typically charge a fee based on the first year’s salary.
Payrolling is also an option in which the client company chooses the candidate but the staffing agency performs the hiring procedures and pays through its payroll and benefits service. This often comes at a lower markup rate because the agency didn’t have to spend time searching for the candidate.
How can a company get information about a staffing agency?
Companies can take staffing agencies for a test run, requesting that they send resumes for a position they’re trying to fill. That allows an agency to prove its skills and allows the company to see what the agency can produce. Staffing agencies also get business through referrals from companies and divisions within a single company. Ask the agency what other companies it is working with to see if it has filled staffing needs effectively within its industry. And request a client list of the businesses an agency is working with to see if there are similar companies to yours.
Sarah Finch is business development manager for The Daniel Group. Reach her at (713) 932-9313 or email@example.com.
Insights Staffing is brought to you by The Daniel Group
While there are benefits to classifying a worker as an independent contractor, such as not having to pay overtime or worker’s compensation, you can face severe penalties for misclassification including back pay and litigation.
“You want to make sure you are correct on the facts of the law when you establish an independent contractor relationship,” says David McLaughlin, a partner with Ropers Majeski Kohn & Bentley.
There are several legal factors that determine how a worker should be classified.
“Employers and principals should be careful to examine the facts of each relationship and then apply the law to those facts,” McLaughlin says. “In other words, it might be time for a gut check on these factors.”
Smart Business spoke with McLaughlin about the consequences of misclassifying workers and how to play it safe to avoid the potential financial Armageddon of misclassification.
Why is it important for employers to correctly classify workers?
Both California and federal agencies are cracking down on independent contractor misclassifications. There’s a new California law imposing a penalty of up to $25,000 for each violation where a worker is willfully misclassified. The Department of Labor and the IRS are going to start sharing information as part of a misclassification initiative to try to catch more violations. If you have a worker who is not characterized as an employee then the employer or principal does not have to pay payroll taxes, overtime, meal and rest periods, unemployment insurance, disability or social security. So there is a benefit to an employer having an independent contractor, but if you fall into a misclassification situation then you may face a wage claim and penalties.
How does an employer know if a worker is an employee or independent contractor?
The definition of an independent contractor in the Labor Code is any person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished. There are slightly different tests depending on which agency is pursuing the misclassification. When the case is in Superior Court of California, the main consideration is control plus 11 other factors. The key is the right to control the worker both in regard to the work done and the manner and means by which it is performed.
Other factors are: Whether the person performing the services is engaged in an occupation of business distinct from that of the principal; whether or not the work is part of the regular business of the principal or alleged employer; whether the principal or worker supplies the instrumentalities, tools and the place for the person doing the work; the alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers; whether the service rendered requires a special skill; the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; the alleged employee’s opportunity for profit or loss depending on his or her managerial skill; the length of time for which the services are to be performed; the degree of permanence of the working relationship; and the method of payment, whether by the time or by the job. Whether the parties believe that they’re creating an employer-employee relationship may have some bearing on the question, but it is not determinative.
The analysis is not black or white. Each of these factors should be considered but they need not be unanimously established. The existence and degree of each factor is a question of fact. The legal conclusion to be drawn from those facts, however, is a question of law, which a judge can decide.
What is the impact of an employer getting a worker to sign an independent contractor agreement?
The contract or contractor’s agreement is not determinative of whether that person is in fact an independent contractor. It’s one of the factors considered and it’s probably one of the easiest things you can do to satisfy part of the test. A contractor’s agreement will have little value if the employer or principal controls the manner and means to get the work done.
What are the risks of misclassifying employees as contractors?
The misclassification of a worker can expose employers to a wage and hour claim and attorney fees to defend that claim. Employers have exposure to waiting time penalties related to wage claims. Business owners also have exposure to other workers who are similarly situated, leading to a potential class action lawsuit.
In addition, there is exposure to stiffer monetary penalties for willful misclassification. These penalties may include a requirement that the employer publicize on its website a court or agency finding that the employer committed a serious violation of the law and which invites other misclassified employees to contact the appropriate labor agency.
California and federal interest in identifying independent contractor misclassification creates danger for principals using independent contractors. Now, more than ever, it is critical for employers and principals to carefully evaluate independent contractors to confirm they are properly classified. Reclassifying workers to employees has many dangers. California businesses that are considering this should seek legal counsel to help with understanding and navigating the potential risks and ramifications.
David McLaughlin is a partner with Ropers Majeski Kohn & Bentley. Reach him at (650) 780-1717 or firstname.lastname@example.org.
Insights Legal Affairs is brought to you by Ropers Majeski Kohn & Bentley PC
Technology convergence is reducing the physical infrastructure required to maintain separate network or platforms, such as voice, data, AV, security and building management systems (BMS), while at the same time consolidating the efforts between departments.
“Typically in the past you’ve had separate networks for voice, data, security and building management systems. The trends we’re seeing is all these different networks are being combined onto the same network or platform,” says Jason Woods, RCDD, director of technology for Alfa Tech.
This convergence might have some bumps along the way as it requires departments unaccustomed to working together, such as facilities and IT, to partner. But Woods says stick with it.
“Be patient. Be prepared. There will be some growing pains with facilities and IT departments working collaboratively. And CEOs should be prepared to have those departments work together to make sure the different projects they have going on turn out successfully and save the company money in the long run,” he says.
Smart Business spoke with Woods about technology convergence and what it could mean as companies implement it.
What are some of the physical changes companies might see when converging technologies?
Prior to convergence, for example, the physical layer infrastructure of voice and data typically consisted of two cables for voice and two for data. This required a large quantity of copper cable to be installed and larger MDF/IDF rooms in order to accommodate more equipment and the cabling associated with this equipment. Now with VoIP (Voice over Internet Protocol) you really only need two cables to each user location, which decreases the quantity of copper cable to each location and throughout the building, reducing the overall physical infrastructure required. With many systems such as voice, data, security and BMS becoming IP enabled, the need for a separate or isolated network for these platforms is no longer required.
What might this mean for departments handling responsibilities that are now converged?
As an example, typically an IT department handles the network equipment and the facilities department is in charge of BMS, monitoring the cooling, heating and power in a facility. With IT equipment becoming smaller and denser, more equipment can be installed in the same footprint as older, bigger equipment leading to greater heat loads. IT and facilities departments need to work together more to ensure MDF/IDF rooms and data centers are cooled properly and adequate funding is in place to cool and monitor the facilities.
Also, if BMS is running on one of the networks, facilities will have to work closely with IT to ensure budgets are met and systems run properly. They might not necessarily be used to working together, so it’s a new challenge for companies since those departments typically work under different department heads.
Why should a company consider converging technologies?
With more and more companies thinking green and trying to get LEED credits for new buildings, convergence is an integral part of constructing a more functional facility that can reduce power and heating costs. IT and facilities working together plays a big part in that. Your payoff will be reductions in cost and energy use.
With the changes brought upon by converging technologies there will be opportunities for staffs to acquire new skill sets. For example, in the past, with voice and data there used to be two separate and distinct departments managing each of the two technologies. With VoIP, many of the engineers in the voice department are now given the opportunity to develop or learn new skill sets, such as routing and switching. Now, voice falls under the IT department, so there’s no separation. With security, this is a technology typically managed and maintained by the facilities department. Currently, many security systems are now IP enabling their system to ride on top of the data network. With security riding on the same network as data, bridging the gap between IT and facilities is more than critical than ever. Similar to what happened with voice and data, security and BMS technologies also could potentially fall under the IT department, which is why bridging the gap between IT and facilities is so important.
The time and money investment, as well as the savings realized through convergence, really depends on the size of the company and the situation.
What could trigger the decision to converge?
As an example with VoIP, currently there are still a lot of companies with legacy telephone systems that are either without warranty and not supported or so antiquated that parts are not readily available so they become cost-prohibitive to replace.
Companies could decide they’d like to clean up their existing physical infrastructure. After reviewing its department budgets, a company also could find that it’s financially prudent. Another time to consider convergence is when you’re ready to buy new equipment. Typically the lifespan of a server or switch is three to five years, so you wouldn’t want to migrate to a VoIP platform, for example, until you were ready to refresh your gear. In addition, you’ll have to determine if your existing infrastructure is capable of handling a network convergence. If it’s not, that has to be taken into consideration as well as how to upgrade with minimal disruption to your staff.
Who can help with a convergence project?
Engineering firms can assist companies when they’re building a facility or remodeling. They will assess your needs and give you the best design based on your requirements. They can help ensure the new structure serves everybody’s purpose — IT and facilities are getting what they want and the CIO is getting what he or she wants, which is reduced costs.
Jason Woods, RCDD, is director of technology for Alfa Tech. Reach him at (408) 487-1267 or email@example.com.
Insights Technology & Engineering is brought to you by Alfa Tech
A software company’s primary cost is people. They don’t necessarily need to purchase equipment, furniture or fixtures. They need engineers and money to pay salaries.
“That’s going to be very different from a non-tech manufacturing company that needs big pieces of equipment to make their widget,” says Mike Lederman, senior vice president and regional market manager with Bridge Bank.
This means the types of loan products needed by technology companies are going to be unique to that industry.
“Look for a banking partner that is going to understand your business and not just look at the numbers,” he says.
Smart Business spoke with Lederman about the financing options for technology companies through the stages of their life cycle and how a company can surround itself with a strong support network.
What loan products are available to pre-profit/venture-backed startup technology companies?
Starting from early stage to more mature venture-backed startup companies, step one may be an invoice financing facility where a lender is financing individual invoices. Also consider a revolving asset-based line of credit, which uses accounts receivable to establish a borrowing base instead of specific invoices.
Next would be a general accounts receivable line of credit, which is structured much like an asset-based line but with fewer lender controls based on a company’s stronger balance sheet. Banks also could add a non-formula line of credit that you draw on and pay interest on the outstanding amount, much like a home equity line of credit.
On the term debt side, banks offer growth capital term loans, which come with financial covenants. This structure may include a six-month, interest-only period followed by 30 months of equal principal payments plus interest.
Also available are equipment term loans, structured very similarly to growth capital loans, but instead of funding the money up front the bank would finance the equipment a company purchases. The bank is looking more at the equipment purchase price to structure the availability.
Banks also offer a venture term loan, which is similar to a growth capital loan but without financial covenants. That’s a good fit for a company that has raised equity capital within the last year and wants to extend runway between equity rounds, in order to increase valuation for the next equity round.
Finally, bridge loans are a great way to help with working capital shortfalls prior to a defined liquidity event, typically an equity round.
What particular needs might a tech startup have that differs from startups in other industries?
A lot of Software As a Service companies will be the host for the software they deploy to their customers, so buying or renting space on servers is a big expense as their customer base grows and uses more bandwidth.
Where banks can help is with working capital shortfalls, meaning you’re past the development stage and you’re actually selling your products, but you have to pay your suppliers before your customer is paying you. You might have to pay at net 30 and you’re getting paid at net 90; that’s where a bank can add tremendous value with short-term working capital until you can collect from your customers.
How and why do loan structures change as a company evolves throughout its life cycle?
As a company matures, it has additional needs. On day one it might have only a few customer invoices, but as a company grows it gains new customers each comprising 10 to 40 percent of total accounts receivable. Now the company can qualify for a more traditional line of credit. Once revenues increase or an equity round closes, a company can consider growth capital or venture debt to support long-term working capital needs as opposed to the short-term line of credit used to pay vendors before receiving customer payments.
What should a technology startup look for in a banking partner?
Numbers are important, but understanding the particular needs of the company is what differentiates a bank from its competitors. Avoid working with a bank that is only interested in your investors. Venture capital investors are an integral part of how banks underwrite credit, but it shouldn’t be the reason they do the deal.
Also, work with the same relationship manager at the bank throughout your life cycle — from the time you open your first checking account to an IPO — because he or she is going to know your history. Continuity is key to a successful relationship, and working with a bank that allows that is important.
Should the entrepreneur expect to provide the bank with a personal guarantee?
Not if it has received equity capital from an institutional investor. If a company hasn’t attracted institutional equity capital and hasn’t been able to sustain positive cash flow, a personal guarantee may be required. Banks need to understand there is someone willing to stand behind the company. The guarantor is responsible for the loan, but the bank’s expectation is there are other company assets to help repay the bank in a liquidation scenario.
How can service providers help you?
It’s important for an entrepreneur to be surrounded by a network that can provide service and support so he or she can focus on building the business. Get an attorney, bank and CPA that do a lot of work with technology startups. They can help with introductions, advice or serve as a sounding board. Focus on building the business and use your network of service providers to bring in partners. Attorneys and CPAs are phenomenal referral sources for banks and vice versa because entrepreneurs realize this is important to keep in mind as they grow their business.
Mike Lederman is senior vice president and regional market manager with Bridge Bank. Reach him at (415) 230-4834 or firstname.lastname@example.org.
Insights Banking & Finance is brought to you by Bridge Bank
U.S. patent law is going through some changes with the implementation of the America Invents Act (AIA), and these changes could affect businesses.
“The biggest change is that in the past, a patent would be awarded to the first to invent and under the AIA, it is now the first to file,” says Tim Nauman, a partner with Fay Sharpe LLP.
The transition represents a big change in U.S. patent culture because the first to invent system in the U.S. was viewed by many as beneficial to entrepreneurs. If you were the first to invent, you could fight for the patent regardless of how quickly someone else filed for it. However, under first to file, some say it is now the one with the most resources who gets to the patent office first who wins.
Smart Business spoke with Fay Sharpe partners Joe Dreher, Eric Highman and Nauman about how changes to U.S. patent law will impact businesses when they take effect in March 2013.
What benefits come with the change in the patent law?
The U.S. was historically the only country that issued patents under first to invent, so this harmonizes U.S. laws with those in other countries. People want consistency; they don’t want to deal with different laws in each country.
Also, the determination of who invented first was sometimes a complicated process, called interference, which the Patent Office or federal District Court would undertake in the event of a dispute over who came up with an idea. The new system eliminates that administrative or court proceeding with regard to this issue, which created some uncertainty for businesses
What can companies do to stay competitive, given the changes to the law?
Ideally, if you think of an idea today, file it today. But while there is no quicker process to getting an invention application on file and established, reality would tell you that this probably isn’t going to happen.
Companies are accustomed to having their employees/inventors fill out an invention disclosure form that they then submit to an internal review process. But that takes time. So under the AIA, the best thing to do is file a provisional patent application as quick as possible and flesh out the internal review details later so as not to get beat to the Patent Office.
While that takes care of the early part, filing multiple provisional applications is just as important because as the idea transforms into a marketable concept, it can change. As the development process goes forward, there could be other features that need to be filed in much the same way as the first. If you haven’t described all of those features in the original filing, you can potentially be second to someone who has.
What’s the difference between a provisional and a nonprovisional application and which is preferred?
In the U.S., provisional patent applications can serve as a basis for garnering an early filing date. It establishes a reliable priority date for “first to file” purposes, but a patent won’t be issued from it. Rather, a nonprovisional patent application must be filed within one year from the earliest provisional application. It is the nonprovisional application that is searched and substantively examined by the U.S. patent examiner. The official fees for nonprovisional applications are more than twice as expensive, so it makes sense to file multiple provisional applications quickly and at a lower rate.
However, there are competing concerns of getting the provisional application filed quickly and getting it filed with sufficient detail. It’s important to get as much detail as possible in the provisional application(s) because only that which is disclosed in a provisional application is entitled to the priority date. If there isn’t enough detail in the application to make the invention work, it may not qualify for patent protection.
Does public disclosure by the inventor impact rights to a patent?
The best approach is to file a detailed provisional application before the product is made public or file as soon as possible after the disclosure. If the application is not filed before public disclosure, the inventor still has one year from such disclosure to file a patent application in the U.S. However, under the AIA, this one-year grace period is subject to someone else filing modifications or variations ahead of the inventor’s patent application on what has been disclosed. There is a risk that businesses might suffer from a false sense of security thinking that they don’t have to file their patent application immediately because of public disclosure. Therefore, if the disclosure has occurred, file the detailed provisional application as soon after as possible.
Foreign filing considerations may also come into play. If you file for a patent application in the U.S., you have one year in which to file in a foreign country with the benefit of your first filing date. However, if you publicly disclose your invention before you file your patent application, you destroy your patent rights abroad. So, public disclosure before filing is not advisable if you are going to file for a patent in another country. Filing a provisional application prior to public disclosure preserves the potential of getting foreign patent rights.
What should companies do ahead of enactment of the new laws?
Under the current law, you can go back and prove an earlier invention date. For applications filed under the new law — beginning March 16, 2013 — it’s first to file, which means you can’t go back before your initial filing date to prove earlier invention.
Before AIA takes hold, finish all of your provisional applications and, in some instances, convert existing provisional applications with added features/subsequent development work to nonprovisional applications by March 15, 2013 so you still have the benefit of the first to invent law.
Tim Nauman, Eric Highman and Joe Dreher are partners at Fay Sharpe. Reach them at (216) 363-9000.
Insights Legal Affairs is brought to you by Fay Sharpe.
To the surprise of many, manufacturing is growing in strength in Northeast Ohio, and manufacturing properties are rapidly being bought up.
Terry Coyne, SOIR, CCIM, an executive vice president with Grubb & Ellis, says interest rates are low and demand is real, but the vacancy rates for manufacturing properties haven’t come down to the point where there have been dramatic price increases.
Bearing in mind that, in real estate, industrial property is a leading indicator of economic trends, says Coyne.
“The big-picture story is that manufacturing is leading industrial out of the recession in a hurry,” says Coyne. “It’s a good time to be a landlord and a bad time to become a tenant, which we haven’t said in three or four years.”
Smart Business spoke with Coyne about the office and industrial real estate markets in Northeast Ohio, and the conditions that have put it where it is today.
What’s happening with real estate in Northeast Ohio?
Industrial’s vacancy rate is almost always historically lower than the office vacancy rate. In Ohio, we’ve got many industrial companies, so prospective buyers have more of a base to choose from. There are fewer office properties because we’re not a headquarters-type location for regional offices. Currently, Akron’s industrial vacancy rate is 10.6 percent and office vacancy is 11.9 percent, while Canton’s industrial vacancy rate is 9.5 percent and office is 11.6 percent.
We went into the recession with high vacancy rates and are coming out with vacancy rates that are decreasing at a speed I’ve never seen. We’re down 100 basis points in nine months, which is good for any market in the U.S.
If you have a building that has any manufacturing capabilities, such as a crane, or a lot of power, or that is near railroad tracks, it’s a great time to be an owner. It’s surprising how quickly we’re coming out of the industrial recession.
The market for office properties has mostly stabilized and has turned the corner. There aren’t as many vacancies coming online because the unemployment level has gone down quarter over quarter in our metro area for three quarters in a row, and that’s reflected in absorption in the office market.
We are seeing better rental increases in industrial, better sale prices relatively speaking in industrial and, if things continue, office-type jobs should see a rebound in the next 12 to 18 months.
What’s driving this trend?
Real demand is increasing because manufacturers that have survived the recession are adding capacity or are reshoring and bringing jobs back to the U.S. The increase in transportation and labor costs in China and Asia means that the financial delta between operating there and in the U.S. is not that great. As a result, manufacturers are mitigating their risks, especially in regard to quality and timely delivery, by having goods produced here.
Also, the manufacturing market is very strong because of organic growth and, especially in Akron and Canton, because of oil and gas. The oil and gas market is adding jobs and absorbing industrial buildings, and Canton has become a headquarters for office space for those in the oil and gas market, positively impacting the region.
How is demolition impacting the real estate market?
Scrap prices were high a few years ago up until last summer. When scrap prices are up, demolition increases, but prices have since come down for ferrous metals. As a result, demolition won’t increase again until the price rises above $400 per ton. There are a lot of people combing through our market looking for the next building they can demolish, but a lot of it has been picked over.
Demolition affects the market because it wipes out buildings that are functionally obsolete. Those types of properties tend to attract low-end tenants that don’t generate a lot of income tax for cities or much in real property taxes. So from a big picture, macro perspective, demolition is a nice way to clean things up.
What about repurposing?
The competition to repurposing is demolition. It’s interesting because a lot of those opportunities are gone. And now that users have real demand, they are becoming competitors to redevelopers.
I think you’ll see a little less repurposing because we are a market that likes to own buildings — put a loan on them, build up equity and sell them. In the past three or four years, it’s been hard to get a loan, so it’s been a great time to be a redeveloper buying up properties and leasing them to those who can’t get loans. Now, however, loans are easier to get, demand is real and that will slow down the redevelopment side of the world.
Is now a good time to buy?
Low natural gas prices mean that if you’re a manufacturer, you want to locate here because one of your materials is cheap. Add that to the trend of reshoring and organic growth, and now you have three demand drivers that are real, whereas in the past you only had one.
Is it a macro shift? I hope it is, because then you’re looking at something that’s generational in scope, and if that’s the case, you’d better buy something as fast as possible.
Also working to our advantage is that when people manufacture items in the U.S., they make them in the Midwest. People are coming back, and all those laborers with the necessary skill sets and the infrastructure are here, so if you’re going to bring it back, you’re going to bring it back to where it was made the first time.
Terry Coyne, SOIR, CCIM, is an executive vice-president with Grubb & Ellis. Reach him at (216) 453-3001 or email@example.com.
Insights Real Estate is brought to you by Grubb & Ellis
The crowdfunding component of The Jumpstart Our Business Startups Act (JOBS) is designed to help startup and emerging growth companies raise capital through new securities exemptions.
“It’s a promising platform for companies that are already doing small-dollar raises of capital,” says Jeff Roberts, a director at Kegler, Brown, Hill & Ritter. “With the high cost of capital from venture and angel funds and the general unavailability of bank funding, small businesses, startups and emerging growth companies are looking for different ways to raise funds, so they are very excited about the possibility of crowdfunding. It’s worth the hype because currently, raising capital is expensive and investors are hard to locate.”
Smart Business spoke with Roberts about how to benefit from crowdfunding.
What is crowdfunding?
Crowdfunding concepts have been in the market for quite some time with companies like Kickstarter providing a platform for businesses to raise money through donations. With the passage of the new JOBS Act, businesses will soon be permitted to issue equity to investors based upon a securities exemption that allows companies to raise up to $1 million annually from non-accredited, small-dollar investors such as friends and family, and those who want to place their money somewhere other than the stock market. Funds will be raised through regulated online crowdfunding intermediaries.
Investors will be limited in the amount of money they can invest. According to the JOBS Act, investors with an annual income or net worth of at least $100,000 can invest up to 10 percent of their annual income or net worth. Those with a net worth of less than $100,000 can invest the greater of $2,000 or up to 5 percent of their income or net worth. The dollar amounts at risk on the front side are small, which helps alleviate the fear of some skeptics who think some investors may spend their life’s savings on a fraudulent venture.
What kinds of companies should consider crowdfunding to raise capital?
Local restaurants (or other small businesses with dedicated customer followings) that need to make certain capital improvements can go out and raise the money for those projects through these online intermediaries. Any startup company that doesn’t generate a lot of income up front could also take advantage of the crowdfunding platform, though such companies may have more difficulty in generating a buzz.
The financial disclosure requirement for raising $100,000 or less is not as great as raising between $100,000 and $500,000. In the latter case, you have to provide reviewed financials, and in raising more than $500,000, companies have to provide audited financials. The cost of providing those financials has been a roadblock for some small startups. When their accounting bill can be $10,000 to $20,000 before they raise a dime, it can be prohibitive to their market access. Given the cost profile, companies with less than $100,000 in financial needs may be best served by this new platform.
What are the potential legal risks associated with crowdfunding?
Companies seeking to raise funds though this exemption need to be more concerned about compliance with state laws that govern corporations, limited liability companies and other entities because, given the relaxed federal regulation, greater emphasis will likely be placed on state law fiduciary duties.
If Ohio can come up with some sort of regulatory scheme that makes it efficient to raise capital this way, then it could become the Delaware of crowdfunding. A lot of the governmental bodies and politicians like that idea and are behind it, but it’s still early. And since federal regulations will trump state law, how this will be regulated between states is still up in the air.
What could change about crowdfunding regulations?
Crowdfunding won’t become a reality until the end of the year because the SEC has 270 days from the date of enactment to put its regulations in place. While some specifics are included in the JOBS Act, there are still some open questions and equity cannot be raised through the crowdfunding securities exception until the regulations are released. What worries me is that the SEC, in an attempt to hurry up and get something out there, might throw out proposed regulations that are not really well thought out, which may create additional road blocks that effectively eviscerate the purpose of the JOBS Act, which is to make it easier and cheaper to access money.
What can companies do now?
Put it on your radar as an opportunity. Some companies considering doing raises in the next six months are operating under the old SEC rules and might put off those investments until they can see what happens with crowdfunding. But otherwise, not much can be done until we know what that landscape looks like.
If a company is interested in crowdfunding, where should it start?
Seek out legal counsel because this is such an unknown area. Issuers of crowdfunding equity are going to have questions about which intermediary to use. Should they go through a licensed broker/dealer instead of a crowdfunding intermediary? How much money should they raise? What are they going to have to provide in the way of financial disclosures? Hopefully, as the market develops, the process will become more efficient and well defined and the cost of fundraising will decrease.
The ability to go to nonaccredited investors online and the ability to reduce transaction costs by not expending substantial amounts of money on securities compliance is a step in the right direction, but time will tell how successfully crowdfunding can be implemented and what type of demand it generate.
Jeff Roberts is a director with Kegler, Brown, Hill & Ritter Co., L.P.A. Reach him at (614) 462-5465 or firstname.lastname@example.org.
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Once you have researched long-term care insurance and are seriously considering buying a policy, there are still many things to consider before your purchase, says Robert D. Coode, a Principal and Registered Representative at Skoda Minotti.
“Make sure you’re doing it for the right reasons and are not being swayed by unsubstantiated sales pitches,” Coode says.
He says potential buyers should consider possible increases to the premium over time; the definition of terms, such as what constitutes an assisted living facility in different states; the financial strength of the institution from which the policy is being purchased; and the chance that an unscrupulous agent is out to inflate his or her commissions to the detriment of the client.
Smart Business spoke with Coode about buying long-term care insurance and what to be wary of before jumping into a policy.
What is long-term care insurance?
Long-term care insurance helps those with chronic illness, disability or those who are unable to perform the basic activities of daily living to offset the cost of care. These policies generally cover services not addressed by health insurance, Medicare or Medicaid.
Are all types of care facilities covered through these policies?
Currently there are no national standards for what constitutes a long-term care facility. This means that an assisted living facility or adult daycare could have one meaning in a particular policy or state and another elsewhere.
This can pose a problem if you buy a policy in one state and retire to another. There could be no facilities in your new state that match the definitions in your policy. To protect yourself, make sure you understand exactly what the policy covers before you buy it.
If I purchase a policy now, will premiums remain the same over the life of the policy?
With most policies, your age at the time you purchase the policy is a factor in determining premiums. However, that doesn’t mean your premiums will stay the same as long as you own it. In fact, your premiums can increase if your insurance company establishes a rate increase for everyone in your class and the state insurance commissioner approves increase.
As a relatively new type of insurance, long-term policies could be more susceptible to rate increases because insurance companies lack a sufficient amount of underwriting data to predict the number and size of claims they can expect in the future. Unfortunately, if your insurance company raises premiums, taking your business elsewhere might not be that simple. Any premium on a new policy will still be based on your age, which will be older, and your health, which might be worse than when you initially bought the coverage. So no matter when you buy your policy, make sure you can afford the premiums both now and in the future.
Is the financial stability of the insurance carrier relevant to the purchasing decision?
A large number of unexpected long-term care claims could potentially devastate an insurance company that isn’t financially strong. So before you buy a policy, it’s always a good idea to check the company’s financial rating by using a rating service such as Standard & Poor’s, Moody’s, A.M. Best or Fitch Ratings. You can also check with your state’s insurance department for more specific financial information on particular companies.
Is a long-term care policy a good tax write-off?
Although it’s true that premiums paid on a tax-qualified long-term care policy can reduce your tax burden, it’s important to note that you must itemize deductions to be eligible. This type of insurance premium falls under the write-off for medical and dental expenses, which is limited to expenses exceeding 7.5 percent of your adjusted gross income. For example, if your adjusted gross income is $60,000, you are able to deduct only that portion of your unreimbursed medical and dental expenses, including long-term care premiums, exceeding $4,500.
However, there’s another caveat. Even if your premiums exceed 7.5 percent of your adjusted gross income, you can’t include all of the premiums in your deduction for medical and dental expenses. Instead, your premiums are deductible according to a sliding scale that’s contingent on your age. So what might look like a great tax write-off at first might not be so great after all.
Also, it’s important to note that beginning in 2013, the threshold to deduct medical expenses will be raised from 7.5 percent of adjusted gross income to 10 percent. The threshold increase will be delayed until 2017 for those ages 65 and older.
What should someone keep in mind when switching policies?
Although in some cases a new policy might have an attractive added benefit that your old policy doesn’t, red flags should go up if an insurance agent encourages you to ditch your old policy for a new one without providing a clear explanation of the added benefits.
For one thing, your premiums are based on your age and health at the time you purchase the policy. So all other things being equal, your new policy will be more expensive. For another, you run the risk that a pre-existing condition won’t be covered under the new policy.
If you’re unhappy with your current policy, an alternative might be to upgrade it rather than replace it. Unfortunately, there are unethical agents who make misleading comparisons of long-term care policies in an attempt to get you to switch products for no more reason than to boost their commission.
If you’re considering switching policies, make sure you understand exactly what the new one offers, whether the additional coverage is important to you and what you’re giving up in the exchange.
Robert D. Coode is a Principal and Registered Representative with Skoda Minotti. Reach him at (440) 449-6800 or email@example.com.
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Are you getting the most that you can out of your property? If you’re not using cost segregation — a little-known method to accelerate tax deduction applied to capitalized costs for many property owners and lessees — you may be missing out.
Scott Smith, an associate in the Tax Solutions Group of Plante Moran an affiliate of Plante Moran CRESA, says that this technique is often overlooked during the construction and acquisition of property, but in both of those transactions, it could provide immediate cash benefits.
“Using cost segregation as part of your planning can potentially free up money to do more on your project or to get back on budget,” Smith says.
In many cases, 10 to 30 percent of a building’s cost can be reclassified into shorter-lived asset classes, such as personal property and land improvements. These asset classes have significantly shorter depreciable lives than that of the building itself, allowing for faster write-offs than would normally be available by classifying the building as one item.
Smart Business spoke with Smith about how to apply cost segregation and the benefits you can realize by doing so.
What is cost segregation?
Cost segregation is the process of taking capitalized costs that generally depreciate over decades and doing a detailed engineering study that fully utilizes IRS laws and rules that allow you to accelerate depreciation. A cost segregation professional who is familiar with construction and the tax laws will apply the facts and circumstances to any given facility to maximize the benefit to the property owner.
What are the benefits to undertaking such a study?
Many property owners will put an entire property on their fixed asset schedule as a single line item and, as such, it will depreciate uniformly over time. Cost segregation takes the depreciation that would normally accrue over 39 or 27.5 years and makes it available to be depreciated between five and 15 years. This creates a net present value that frees up money for the taxpayer to do things such as expand the business, fund future projects and buy new furniture.
For example, reclassifying $100,000 in assets from 39-year property to five-year property will result in approximately $19,000 in net present value savings, assuming a 6 percent discount rate and a 40 percent composite tax rate.
What assets can cost segregation apply to?
In an office setting, it can apply to items such as carpeting, wallpaper, decorative lighting and cabinetry. In manufacturing, assets such as process electrical, process piping and HVAC, and equipment foundations should be considered. The depreciable life on these assets is generally five or seven years.
On the outside of a building, look at land improvements such as parking lots, site lighting, landscaping, retaining walls, sidewalks, curbs and gutters. The depreciable life on these assets is generally 15 years.
What types of companies should consider cost segregation?
It is beneficial for companies that have built, renovated or acquired a facility and need to offset some of their income — really, any company that has to capitalize costs that it has paid for. In general, the value of the construction or acquisition should be in excess of $1 million to feel the benefit from a cost segregation study. Companies can even go back in time. Say, for example, you purchased a building in 2006 and put it on your fixed asset schedule. Provided that the documentation and records are good, you can do a cost segregation study in the current year and ‘catch up’ any missed depreciation, all the way back to 2006, in the same year. This missed depreciation is called a 481(a) adjustment and can be claimed by filing the proper paperwork without having to amend any prior tax returns.
When is it a good time to do cost segregation?
The best time to do it is right after you buy, renovate or construct property, for several reasons. The documentation at that time is readily available and not collecting dust in a box somewhere. Also, the people associated with the construction are still available and information is fresh, which ultimately increases the quality of the study because fewer assumptions need to be made.
Who should conduct the study?
Choose someone who’s reputable and qualified. The IRS has issued an Audit Technique Guide that serves as an outline of what a quality cost segregation study includes and who is most capable of doing it.
If you use the wrong person — someone who is not familiar with tax law or construction — that person might not provide the detail that you need to pass an IRS audit if one should occur, which could result in interest and penalties. Make sure that you’re working with someone who understands both engineering and tax law to ensure that you get good results.
Why should companies take advantage of this opportunity now?
For certain years, the IRS has said that not only can you accelerate depreciation through cost segregation, you can also qualify for substantial bonus depreciation in the first year on new property. This year, the rate is 50 percent, which means that you’ll accelerate the depreciation on half of a qualifying item’s value, in addition to the percentage you would normally get in the first year. Imagine depreciating more than half of your new carpeting or parking lot in the first year. If you constructed property in 2011, the rate is an unprecedented 100 percent.
Businesses should take advantage of this opportunity now, as it is currently set to expire at the end of this year.
Scott Smith, LEED AP, is an associate in the Tax Solutions Group for Plante Moran, an affiliate of Plante Moran CRESA. Reach him at (248) 603-5203 or firstname.lastname@example.org.
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ICD-10, an international disease coding system, is mandated for adoption in the U.S. by Oct. 1, 2014, and will require health care organizations to switch from the soon-to-be outdated ICD-9.
Srividya Thyagarajan, head of Healthcare Center of Excellence for HTC Global Services, says the change will impact providers of health care services, insurance companies, billers that deal with health care claims, government agencies that report statistics on morbidity, disease outbreaks, and researchers who are looking to prevent diseases. The changes will allow for capture in greater detail about the disease diagnosed and the procedures performed. This additional detail will provide better tracking of outcomes of care, severity of disease and conditions and management of risk and health status.But first, organizations need to train their personnel to understand and interpret the additional detail.
“At the end of the day, all of this is to improve health care quality and lower costs,” Thyagarajan says. Smart Business spoke with Thyagarajan about what organizations in the health care field need to be doing ahead of the deadline.
What is ICD-10 and what changes will it bring?
ICD-10 is part of the International Classification of Diseases coding system, defined by the World Health Organization to normalize the standards by which diseases are coded throughout the world. This helps us better understand and manage morbidity, mortality and disease outbreaks around the globe. ICD-10 is the 10th revision of the code set.
The revision will offer more specific details that can help analyze and prevent diseases. As an example, in ICD-9, the current coding standard, you would classify any type of injury to the arm as a fracture of the arm. In the new code set, you would provide more detail, such as where on the arm the fracture is, which arm is it on, whether it is an open or closed fracture and whether this is the initial encounter or subsequent encounter. Such additional detail will help in understanding the severity of the condition and the type of care provided. This will help better manage care, cost and outcomes.
What areas of payers’ business cycles will this impact?
Almost all areas of the Payer’s business cycle will be impacted, including strategic processes, operational processes and support processes. A big part of a payer’s operation is receiving and processing claims, all of which carry the disease/ diagnosis codes, as well as a description of the procedures used to remediate the disease. This part will be heavily impacted. It will also impact a Payer’s strategic processes like utilization management, network management, disease management because ICD-10 has a lot more data that can help Payers make decisions on paying for performance and incentivizing positive and preventive health services.
ICD-10, through its more detailed descriptions, can help in Payer support processes such as Fraud detection. It allows more detailed reporting to the government agencies that collect data and statistics on areas such as immunizations, disease outbreaks etc.
However, while providing additional details could help in understanding the cause and location of the disease, it could also lead to a decrease in reimbursement. As in the previous example, if, in ICD-9, only ‘fracture of the arm’ could be listed to classify a number of injury diagnoses regarding the limb, in ICD-10, the greater detail would require you to specify if it was the first encounter or subsequent encounter in the Claim. The Claim may be reimbursed at different levels for the first encounter and subsequent encounters.
To help ease into the transition, many payers are pledging financial neutrality for the first two years that the new code is implemented. This will mean a continuation of the reimbursement levels paid through ICD-9 until the Provider contract is up for renewal.
Can the required changes to an organization’s information technology systems be handled internally?
If an organization has a large IT department, it could handle the changes internally, but because IT is not part of their core business, they should look at IT vendors and suppliers that have expertise in large application system migrations. Many in the industry are thinking of this simply as an IT problem, but IT is the least of the worries. The larger part of it is the business policy and process changes to accommodate and deal with the greater specificity.
Is there a penalty for not complying with ICD-10?
No, there have been no penalties announced by the Center for Medicare and Medicaid Studies, but that doesn’t mean there won’t be an announcement later. Moreover, whatever has been negotiated in existing Payer-Provider contracts will have to be respected. Not being in compliance could result in delayed reimbursements for Providers and administrative overheads for Payers.
How much time should organizations dedicate to preparing for these changes?
If you really want to position your organization from a strategic standpoint, invest in ICD-10, make it part of your future and embrace it now. Decide how you’re going to code and determine how it will affect your bottom line. While organizations should have started preparing in 2010, there is still time if you start now. The fact that the deadline has been moved from 2013 to 2014 should not make organizations use it as an excuse to procrastinate.
Many have been approaching the change as if it’s a small problem that will go away after October 2014 as long as they accept the codes. However, after ICD-10 is implemented, crutches such as mapping services -- which link claim language from one version of the code to another -- will have to be thrown away for a more permanent adoption of the new standards. You have to make policy, process and system changes to ensure you leverage the additional detail to your advantage.
ICD10 can improve quality of care and lower cost, but organizations need to accept the change and use the additional details intelligently to derive these benefits.
Srividya Thyagarajan is head of Healthcare Center of Excellence for HTC Global Services. Reach her at Srividya.email@example.com.
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