Technology has opened up doors for a new class of high-tech criminal. Business owners and consumers are bombarded with articles and news reports warning against the dangers of identity theft, computer hacking and other scams that were unheard of 25 years ago.

While it’s important to keep your computer and financial records safe from unknown tech-scam professionals, the criminal your business could fall prey to may be much more familiar. Unfortunately, many of the most common types of fraud cases are internal.

Smart Business spoke to Glenn Lauter and Paul Orsborn of Comerica Bank about what you can do to protect your small business against internal fraud.

How common is internal fraud?

Lauter: Employee-committed acts are the most common and most expensive type of fraud, accounting for more than half of all reported cases. Employees have the easiest access and can sometimes harbor resentment or anger that pushes them to break the law. According to the Association of Certified Fraud Examiners, $652 billion per year is lost to internal fraud. Small businesses are the most vulnerable, accounting for a whopping 80 percent of all internal fraud cases.

What types of internal fraud should I be on the lookout for?

Orsborn: The most common ones are asset misappropriation, corruption and doctoring financial statements, as well as pilfering company cash or resources. Bribery and kickbacks, which involve vendors or others outside the business, are also common.

One thing that is helpful in alerting management to a possible internal theft is a company policy that requires employees to report suspicious activity of another employee. In order to be successful, there must be a secure, anonymous method for the employees to report any such activity.

What preventative measures can I take?

Lauter: Many businesses fall victim to fraud because they trust their employees and think that it can’t happen to them. One of the most effective measures a business owner can have in place to protect his or her business is a solid set of policies and procedures. Employees should be well versed in these policies and know that violations will not be tolerated.

How can I help ensure the people I hire are trustworthy?

Orsborn: Small businesses should take measures to screen potential employees before they entrust them with the company’s confidential information. Inform candidates they are subject to a background check for initial employment and a subsequent check if they move into a new function in a more sensitive area. Permission for credit checks should also be a condition of employment.

Additionally, separation of duties is an effective control a company can put in place to protect itself. For example, inventory warehouses can be full of loopholes that should be watched. It may be as simple as having a different person check out equipment than the one who checks it back in. Make sure that your employees know exactly what their responsibilities are and have been thoroughly trained.

What role can I play in preventing fraud?

Lauter: It is best to be involved in your business and oversee all areas of operation so if something doesn’t look right, it can be addressed right away. For instance, keep control of your bank account. Too often, small businesses tend to give other people control of their accounts and do not monitor the account activity until it is too late. Also, scrutinize checks for your signature and never sign a blank check. Avoid using a signature stamp, as that will limit the potential for someone to forge a company check. Finally, have an outsider review your books monthly, or at least quarterly, with no advanced warning to your employees.

GLENN LAUTER and PAUL ORSBORN are senior vice presidents for Comerica’s Texas Business Banking Division. Comerica Bank is the commercial banking subsidiary of Comerica Incorporated (NYSE: CMA), the largest banking company headquartered in Texas, and strategically aligned by three business segments: The Business Bank, The Retail Bank and Wealth & Institutional Management. Comerica focuses on relationships, and helping people and businesses be successful. In addition to Dallas, Houston and Austin, Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. Comerica reported total assets of $55.0 billion at March 31, 2011. To receive e-mail alerts of breaking Comerica news, go to www.comerica.com/newsalerts.

Published in Dallas

Applying for a loan can be confusing for a small business owner or aspiring entrepreneur, especially if you’ve never been through the process. In addition to being asked to provide a significant amount of information, you also may encounter unfamiliar terms when seeking financing for your business.

Smart Business spoke to Jim Terrell and Donna Mittendorf of Comerica Bank about understanding financial jargon you may come across when applying for a loan.

What are some common terms I should be familiar with?

Terrell: A few of the common terms that you may come across include the following:

  • Assets. This refers to what the business owns. Current assets are those that can generally be converted to cash within one year like cash, accounts receivable and inventory. Long-term or fixed assets include equipment and real estate.
  • Balance sheet. This is a financial statement that shows assets, liabilities and net worth. Total assets will always equal total liabilities plus net worth.
  • Cash flow. This term refers to the capacity of a firm to repay its debt. A company’s net earnings + taxes + depreciation and amortization expense should exceed its total debt service (current maturities of long-term debt + interest expense).
  • Liabilities. These are what a business owes. Current liabilities are those that are due within the next year like accounts payable, line of credit and current maturities. Long-term liabilities are anything that is due beyond one year.
  • Net worth. Also known as equity, an owner’s equity is determined by subtracting a company’s liabilities from its assets.

What is the aging of accounts payable/accounts receivable?

Mittendorf: ‘Aging’ is an analytical tool that lists the vendors to whom you owe money (accounts payable) or the customers who owe you money (accounts receivable), amount of money owed and due dates. The information is organized by due date or invoice date.

What is the difference between amortization and depreciation?

Terrell: Amortization is the process of paying off a debt over time through a series of payments. The amortization term of a loan is the number of years it will take to reduce the balance to zero. Depreciation is an accounting entry in which the cost of a long-term asset is expensed over its useful life. The accumulated depreciation is reflected as an offset to the cost of the asset on the balance sheet. The remaining value of the asset is its ‘book value.’

Is there a difference between collateral and leverage?

Mittendorf: Yes, collateral is an asset pledged against a loan in the event the borrower cannot repay the loan. Typically the asset financed is the collateral. In the event the borrower defaults on the loan, the bank could take possession of and sell the asset, minimizing its loss. Leverage is the amount of a firm’s debt compared to its net worth. This is typically reflected as a ratio. A low leverage position is indicative of strong capitalization relative to the company’s total debt.

Are there other common terms I may come across?

Terrell: While there are many terms you may come across in the loan process, a few more common ones include the following:

  • Current maturities. This refers to the principal portion of long-term debt that is due within the next 12 months.
  • Income statement. This is a statement detailing a firm’s revenue and its expenses. After subtracting expenses from income, the firm will show either a profit or a loss.
  • Line of credit. A line of credit is a type of short-term financing that allows a borrower to access funds as needed up to a specified amount. It is commonly used to finance a firm’s day-to-day operations.
  • Working capital. This term refers to the difference between current assets and current liabilities. A positive working capital number indicates that a company can pay off its current obligations by converting its short-term assets to cash.

JIM TERRELL and DONNA MITTENDORF are senior vice presidents for Comerica’s Texas Business Banking Division. Comerica Bank is the commercial banking subsidiary of Comerica Inc. (NYSE: CMA), the largest U.S. banking company headquartered in Texas, and strategically aligned by three business segments: The Business Bank, The Retail Bank and Wealth & Institutional Management. Comerica focuses on relationships, and helping people and businesses be successful. In addition to Dallas, Houston and Austin, Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. Comerica reported total assets of $55 billion at March 31, 2011. To receive e-mail alerts of breaking Comerica news, go to www.comerica.com/newsalerts.

Published in Dallas

In the world of business, cash is king. You can have the best product on the market, but if you run out of cash, it doesn’t matter. Poor cash flow is one of the primary reasons businesses fail.

Companies sometimes aren’t realistic when it comes to predicting their income and expenses. Businesses will overestimate their income, underestimate their expenses and won’t see a cash shortage coming and end up running out of money.

Smart Business spoke to Glenn Lauter and Paul Orsborn of Comerica Bank about how to make sure your business cash flow management stays on track.

What is cash flow?

Lauter: Cash flow is the movement of money within a business, both expenditures and income. The lag between the two is what can cause problems. Cash flow management, delaying outlays of cash as long as possible, while encouraging anyone who owes you money to pay it as quickly as possible, is the solution. Successfully managing cash flow means being able to answer ‘yes’ to the question, ‘do I have enough cash in my bank account to cover my expenses?’

How will I know if a cash flow problem is looming?

Orsborn: Watch for warning signals. It’s easy to get wrapped up in day-to-day operations and overlook indications of upcoming cash flow shortfalls. To avoid cash flow problems, watch out for and heed early warning signals like account balances that continue to be lower than anticipated for long periods of time, sales slowing down, payments to suppliers being continually delayed and plans for growth that keep being put off. All of these problems should be considered warning signs and should be addressed immediately.

Should I establish a cash flow budget?

Lauter: Yes, a cash flow budget will enable you to predict your company’s ability to take in more cash than it pays out. It can also predict cash flow gaps so that you can take steps to close, or at least narrow, these gaps.

There are items to consider when thinking of a cash flow budget. One is your sales forecast. Any forecast will face some uncertainty due to a difficult economy, inflation and competitive influences. However, a sales forecast is still an important step in attempting to predict major cash flow problems. You should also take into consideration projections of cash inflows and outflows. Does your business accept cash sales only or does it extend credit? Think of the cost of goods, expenses, major purchases and any debt payment to help predict your outflow as well. All of these will end up affecting your cash flow in the long run.

How do I avoid cash flow problems?

Orsborn: Most cash flow problems can be avoided by following a few simple steps. First, keep better track of accounts receivable, especially late-paying customers. Second, manage your inventory closely. Try to have enough inventory to satisfy your product line and delivery needs, but no more. Lastly, increase prices marginally if necessary. Implementing a 1 or 2 percent price increase is reasonable if you have a strong sense of your customer base and know the point at which you would start losing sales.

Also review your staff needs. Do you have more staff than your business requires? Are you using them efficiently? Consider hiring part-time or temporary employees to help during peak periods. In a service business, employees’ wages are your inventory and understanding the trade-offs between employees and contract workers is a key component in maximizing cash. Other helpful steps include managing accounts payable, analyzing benefits, considering leasing versus buying an asset and borrowing judiciously to position your company before creditors as being well-managed.

Should I get a line of credit?

Lauter: The impact of poor cash flow can be significant even when it’s temporary. Disbursements may be delayed, penalties and late fees incurred and shipments withheld. If necessary, get a business line of credit to avoid this. Comerica offers a business line of credit that can provide you with the funds you need to help grow your business.

Glenn Lauter and Paul Orsborn are senior vice presidents for Comerica’s Texas Business Banking Division. Comerica Bank is the commercial banking subsidiary of Comerica Incorporated (NYSE: CMA), the largest U.S. banking company headquartered in Texas, and strategically aligned by three business segments: The Business Bank, The Retail Bank, and Wealth & Institutional Management. Comerica focuses on relationships, and helping people and businesses be successful. In addition to Dallas, Houston and Austin, Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. To receive e-mail alerts of breaking Comerica news, go to www.comerica.com/newsalerts.

Published in Dallas

No matter what business you are in, there are times when borrowing money makes financial sense. Oftentimes, extra capital is needed to allow your company to grow. Trying to finance growth internally can often present challenges for many businesses, especially when up front investments are required and if proper capital structure and working capital support are not in place.

Smart Business spoke to Jim Terrell and Donna Mittendorf of Comerica Bank about how to successfully secure a business loan.

When should I begin?

Terrell: Don’t procrastinate when it comes to your business finances. Start the process early in anticipation of potential needs for adjustments. A solid banking relationship begins with getting to know the ‘soft side’ of things. Relationships built upon mutual trust and commitment are usually longer lasting and more fruitful than ones built upon a quick, transactional approach.

How do I find the right commercial banking officer?

Mittendorf: Commercial banking officers are in business to help your business succeed. They will help you grow your business, improve cash flow and avoid ‘roadblocks’ that may negatively impact your business. To find a commercial banking officer that best fits your needs, ask fellow business owners for recommendations. Interview several commercial banking officers until you find one who will work hard to understand your business and is motivated to help you succeed. It is essential you find a banker you trust since you are investing substantial amounts of time into building a long-term partnership.

What should I provide my banker?

Terrell: The first step in the loan process is to provide your banker with a comprehensive overview, or business plan, of your company. This plan is critical to the banker’s understanding of you and your business. It should include a description of your product or service offerings, names and background of key management, a market/competition overview and an outlook for the industry/market. Make sure your business plan doesn’t just factor in the positives but addresses any challenges your business might face and how you plan to address them so your banker can see the whole picture.

Do I need to provide my company’s financial information?

Mittendorf: Yes, financial statements are oftentimes referred to as ‘banker’s blueprints.’ They provide the lender with a clear view of the company’s past, present and future. Financial statements should include a balance sheet, income statement and any footnotes necessary to provide the reader with a clear understanding of the company’s financial condition. Businesses should be prepared to provide three to five year-end financial statements along with the most recent interim statement. A forecast of how your company will be affected financially if you are considering expansion is important as well.

Will I be asked for personal financial information?

Terrell: Most likely yes, because personal finances of business owners and their company are so closely related. To satisfy this requirement you can provide a personal financial statement, which usually consists of a balance sheet detailing assets (property values, securities held, etc.), liabilities, a breakdown of total personal income (salary, investments, etc.) and details of any minority or majority ownership in joint ventures, LPs, LLCs, etc. You also may be asked to provide personal tax returns and, because commercial banks see personal credit as a strong reflection of how the finances of the business are handled, a credit score over 700 is preferred.

Is there anything else I should include?

Mittendorf: Make sure to explain how the loan proceeds will be used. It is useful to have a detailed explanation of the purpose of the loan. If borrowing funds to purchase machinery or equipment, show a contract outlining the purchase and delivery price. If applying for real estate construction funds, pertinent details from the architect, contractor and/or construction manager will be required.

Jim Terrell and Donna Mittendorf are senior vice presidents for Comerica’s Texas Business Banking Division. Comerica Bank is the commercial banking subsidiary of Comerica Incorporated (NYSE: CMA), the largest U.S. banking company headquartered in Texas, and is strategically aligned by three business segments: The Business Bank, The Retail Bank and Wealth & Institutional Management. Comerica focuses on relationships, and helping people and businesses be successful. In addition to Dallas, Houston and Austin, Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. Comerica reported total assets of $53.7 billion at Dec. 31, 2010. To receive e-mail alerts of breaking Comerica news, go to www.comerica.com/newsalerts.

Published in Dallas

Every business owner has, or at least has heard of, a business plan. It summarizes the operational and financial objectives of your business and gives a high-level overview of the operations of your company. Business plans are not only useful for planning purposes, but are oftentimes necessary to obtain financing and attract investors.

But what about a business model? This distant cousin of the business plan is rarely written or talked about, but it’s what separates a Starbucks from an ordinary coffee shop. It describes your business and how it will generate revenues. It assesses the marketplace’s needs, risks and costs and is the basic framework your company will follow to become profitable.

Smart Business learned more from Matt Marchbanks and Paul Orsborn of Comerica Bank about the main components that your business model should contain.

What is the first thing a business model should contain?

Marchbanks: The first item to include is a description of the products and services your business will offer and why customers should purchase them. What makes your business unique and differentiates your products or service offerings? How will they fulfill the needs of customers? You must consider in your business model how you will transform your product or service into something attractive to consumers and how it will be made available to them. In essence, you should describe what will make your business successful.

Should necessary expenses be included in a business model?

Orsborn: Yes, the next crucial item to consider is how much your fixed expenditures will be. First, think about the core operating costs of the business. This includes everything from rent and employees to equipment and office supplies like computers. Also take into consideration the cost of any fees you may encounter when starting your business, like licenses, agreements and legal, accounting and insurance fees. You should also determine how much your product will cost to produce. Will you need a factory or supplier to produce it? Will you need to pay for shipping or transportation across the country? If you’re going to offer a service, think about what upstart costs you will incur.

How should revenues be factored in?

Marchbanks: The next step is determining how you will make money to offset the cost of your expenses and, in the end, be profitable. Who will your potential customers be? Look at the demographic you will be targeting and identify your target customer. Next, start to think about how you will develop customer relationships and how you will sell your product or service. You will need to develop a marketing and distribution strategy. Entrepreneurs should learn about trends and new breakthroughs and research their competitors. It’s also a good idea to talk to people outside of your industry. You never know what valuable information you can gain from an outside perspective.

Should a detailed financial plan be developed?

Orsborn: Yes, your detailed financial plan should include the initial investment needed to get your business up and running, like facilities and equipment, and also working capital to begin and sustain operations. It should also include an itemized list of expenses and revenue projections and keep track of profit, return on investment and cash flow. Also remember to keep continually thinking about your business model after you start your business, especially when it’s time to branch out. If your business goals change, it’s time to revise your business model.

Matt Marchbanks and Paul Orsborn are senior vice presidents for Comerica’s Texas Business Banking Division. Comerica Bank is the commercial banking subsidiary of Comerica Incorporated (NYSE: CMA), the largest U.S. banking company headquartered in Texas, and strategically aligned by three business segments: The Business Bank, The Retail Bank, and Wealth & Institutional Management. Comerica focuses on relationships, and helping people and businesses be successful. In addition to Dallas, Houston and Austin, Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. Comerica reported total assets of $53.7 billion at Dec. 31, 2010. To receive e-mail alerts of breaking Comerica news, go to www.comerica.com/newsalerts.

Published in Dallas

Dust off those receipts and make an appointment with your tax professional, because it’s time to do your 2010 tax filing. When tax season rolls around, many business owners may not be aware of the tax credits and deductions they can receive. Anything from buying new inventory to insurance and retirement plans can be tax deducted.

Smart Business spoke to Glenn Lauter and Donna Mittendorf of Comerica Bank about what tax credits and deductions can be taken advantage of this year to make sure your business’s 2010 tax bill is as low as possible.

What is Section 179?

Lauter: Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if you buy or lease a piece of qualifying equipment, you can deduct the full purchase price from your gross income. It’s an incentive created by the U.S. government to encourage businesses to buy equipment and invest in their companies.

Section 179 limits were increased by the Jobs Act of 2010, allowing businesses to write off up to $500,000 of qualified capital expenditures subject to a dollar-for-dollar phase-out once these expenditures exceed $2 million. To find out more information about Section 179, including a Section 179 calculator, visit www.section179.org.

What business expenses can be deducted?

Mittendorf: Make sure that you are taking advantage of all available deductions. Business owners can deduct business expenses as long as they are both ordinary and necessary. If you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost and deduct the business cost. If you use part of your home for business, you may be able to deduct expenses including mortgage interest, insurance, utilities, repairs and depreciation. If you use your car for business purposes, you can deduct car expenses, including mileage. You can also deduct employees’ pay, retirement contributions, rent expenses, interest, taxes and insurance. Make sure you check with your tax adviser for all available deductions because they can lead to significant savings.

Do businesses get tax credits if they go green?

Lauter: Yes, every time your business makes a green improvement, you could be eligible for a new tax credit. For example, if you buy a qualifying fuel cell, hybrid, advanced lean burn technology, or alternative fuel vehicle, you could receive a credit of up to $2,400. Things like reducing your energy consumption by adding solar panels, replacing windows or putting in a more efficient heating and cooling system not only helps trigger a tax credit but can save you money on your utility bills, as well. Businesses can deduct up to $1.80 per square foot of space in new or existing buildings where they install more efficient interior lighting, HVAC or hot water systems.

What is Section 199?

Mittendorf: Section 199 is the domestic production activities deduction and is one of the largest missed deductions by businesses. Under Section 199, taxpayers are allowed a deduction equal to a percentage of net income from their U.S. production activities. This deduction applies to businesses engaged in industries like manufacturing, film, computer software development/production (either off the shelf or downloadable software), sound recording, construction and utilities.

This deduction requires some complicated calculations, but don’t let that scare you away because the tax savings can be significant. In 2010, the percentage you are allowed to deduct under Section 199 increased to 9 percent, up from 6 percent.

How do health care plan options factor in?

Lauter: The cost of health care can be one of the greatest concerns for small business owners. Many small businesses combine high deductible plans with health savings accounts as a way to provide benefits to employees. Small business owners tend to overlook the ability to directly deduct health insurance as an adjustment from income. Not only can business owners deduct their insurance, they can also deduct their spouses’ insurance, as well.

Comerica Bank and its affiliates do not provide tax or legal advice. Please consult with your advisers regarding your specific situation.

Glenn Lauter and Donna Mittendorf are senior vice presidents for Comerica’s Texas Business Banking Division. Comerica Bank is the commercial banking subsidiary of Comerica Incorporated (NYSE: CMA), the largest U.S. banking company headquartered in Texas, and strategically aligned by three business segments: The Business Bank, The Retail Bank, and Wealth & Institutional Management. Comerica focuses on relationships, and helping people and businesses be successful. In addition to Dallas, Houston and Austin, Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. Comerica reported total assets of $53.7 billion at Dec. 31, 2010. To receive e-mail alerts of breaking Comerica news, go to www.comerica.com/newsalerts.

Published in Dallas

Family-owned businesses can be one of the most rewarding types of business, but also can be one of the most difficult to manage, especially when it comes to working relationships. Everything from advancement and salaries to hiring new talent and changing vendors can be overlooked or mishandled so as to not offend a family member.

Smart Business learned more from Donna Mittendorf and Jim Terrell of Comerica Bank about managing a family-owned business and how to prevent the problems and pitfalls that typically arise when working with those with whom you have close personal ties.

What are the advantages of having a family-owned business?

Donna: There are numerous advantages to having a family-owned business, such as the continuity it affords with customers and vendor relationships. Customers and vendors know your family name and will continue to work with you as a result. There is also a built-in loyalty to the business, and its long-term approach and nature gives it a competitive edge. Family-owned businesses tend to spend money wisely since they are building wealth to pass on to future generations, and they are typically more stable as they are less likely to make radical cutbacks during an economic downturn.

However, don’t turn these advantages into complacency. It’s easy for a family business to become complacent and not welcome change if the business is successful. The problem is your competition is keeping up with technology, product advances and other advancements that could render your business ineffective.

How can you minimize conflict when working with family?

Jim: It’s difficult to balance business relationships with family ties. A clear understanding of the roles and expectations of each family employee can prevent many of the problems that tend to pop up in family-owned businesses. Keep everyone accountable and, when a major decision needs to be made, make sure it’s made with the growth and stability of the business in mind.

How should a family-owned business plan for change?

Donna: If the business is going to be handed over to the next generation, the decision needs to be made well in advance. Other issues like how management will change with the new generation and what the responsibilities are for each member also need to be addressed well ahead of any leadership change.

Business owners also need to make sure to have their estate planned out and have items like a will and stock transfers in order in case of a sudden emergency. It’s also a good idea to have leadership transition and family ownership plans in writing so there is no confusion.

Family businesses often take great pride in their traditions, but make sure you don’t take this to an extreme and forget to change and grow. This is one of the most common mistakes family-owned businesses make and one of the main reasons some are unsuccessful.

How should family-owned businesses handle succession?

Jim: There can be resentment among family and longtime non-family employees if succession is not handled properly. It’s not easy to bring in a son or daughter and introduce him or her as the new boss to people who have been working at your business for decades. Make sure family members are brought in at the bottom, or close to the bottom, and let them work their way up. They will feel they earned the position and there will be less resentment from other employees than if they start off in a corner suite.

When should a family-owned business look for outside help?

Donna: It’s a good idea to look for outside advice on plans for succession management, buy-out arrangements or in the event of aging of principals, illness of an owner, or children who want in or out of the business. Business owners should seek reputable organizations and professionals and assess what each can offer. Ask the institution for samples of the work they have done and if possible, try to get previous customers’ testimonials. Comerica advisers can help with everything from estate planning and portfolio management, to trusts and insurance.

DONNA MITTENDORF and JIM TERRELL are senior vice presidents for Comerica’s Texas Small Business Banking Division. Comerica Bank is the commercial banking subsidiary of Comerica Incorporated (NYSE: CMA), the largest U.S. banking company headquartered in Texas, and strategically aligned by three business segments: The Business Bank, The Retail Bank, and Wealth & Institutional Management. Comerica focuses on relationships, and helping people and businesses be successful. In addition to Dallas, Houston and Austin, Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. Comerica reported total assets of $55.0 billion at September 30, 2010. To receive e-mail alerts of breaking Comerica news, go to www.comerica.com/newsalerts.

Published in Dallas