A few weeks ago, I was in a CVS, buying a few items that included a case of water, a newspaper and a candy bar for one of my kids. As I was leaving, the cashier handed me my receipt, which literally took 15 seconds to print out — no exaggeration. As I was walking out, I chuckled a little bit while reviewing the 42-inch receipt. I bought three items and the receipt was more than 3½-feet long.
OK, let’s get past that and go to what was on the receipt. Besides my items, there was an opportunity for a $1,000 sweepstakes and coupons for:
? Get a flu shot today and receive 20 percent off.
? $4 off when you spend $20 on vitamins.
? $6 off a beauty purchase of more than $15.
? $1.50 off any shampoo or conditioner.
? $2 off any Nature Bounty Vitamin.
? $1 off Excedrin — for life’s headaches.
Very few of these coupons are personalized to me — meaning based on prior purchases. Why is this? Since I used my ExtraCare card, CVS knows a ton about me, my habits, what I buy, when I buy it and the regularity of those purchases. Of these six offers, I bought only vitamins a week prior to this purchase. Clearly, there was no chance for me to buy them again. I forgot to mention that all of these coupons expired less than a week after my visit.
Use resources wisely
I must admit: I don’t get it. I feel that CVS has wasted resources, information, paper, my time and — most importantly, from the company’s standpoint — an opportunity to persuade me to shop more in its store and increase its revenue.
The way I look at it, I am in the company’s store, I am a customer, I am buying products, and then I am leaving the store. Furthermore, I assume CVS wants me to return, it wants more of my business, and it wants me to spend money in its store.
Since we know all of that is true, CVS should find a way to personalize all the offers to my needs. It should understand that I have seasonal purchases and understand how often I buy water, soda and candy bars. Customize the receipt to the customer. If you can’t customize all of the offers, then customize a few of them.
If the six coupons were about the products that I shop for there, such as soda, newspaper, candy for my kids, dish soap, detergent and paper towels, then the coupons would have had a positive effect on my purchase intent.
Problem is pervasive
Even though I mentioned CVS, the same is true for many other retailers. When looking over recent receipts from Walgreens, Panda Express, Tom Thumb and Golfsmith, they are all missing opportunities to effectively communicate with customers. In the age of big data, why aren’t companies using this more to their advantage?
To me, the winning retailers in 2013 will be the ones that understand and can implement personalization in dealing with their customer base. As a customer of a lot of retailers, I truly hope this happens sooner than later. ?
Merrill Dubrow is president and CEO, M/A/R/C Research, located in Dallas, one of the top 25 market research companies in the U.S. Merrill is a speaker and has been writing a blog for more than six years. He can be reached at email@example.com or at (972) 983-0416.
In August 2012, the Securities and Exchange Commission (SEC) issued a final rule regarding the conflict minerals disclosures mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Act). Public companies will be required to disclose whether they use conflict minerals such as tantalum, tin, tungsten and gold in their manufactured products — and whether the minerals originated from one of the “covered countries” defined by the Act.
“This rule could be very broad reaching, with the SEC estimating approximately 6,000 issuers will be required to provide new disclosures under the rule. Many private companies may also be impacted,” says Dale Jensen, partner-in-charge of Weaver’s SEC practice.
Smart Business spoke with Jensen about how to prepare for compliance.
Why do companies need to be concerned with supply chains now?
Hundreds of products contain conflict minerals, from cell phones and laptop computers to jewelry, golf clubs, drill bits and hearing aids. The SEC estimates that thousands of public companies will have to provide the new disclosures, and many private companies that are part of the impacted public companies’ supply chains may also be affected. Additionally, they estimate the initial compliance costs to be $3 to $4 billion, with subsequent costs of more than $200 million annually.
Who is impacted by this new rule?
Public companies, foreign private issuers, emerging growth companies and smaller companies must all comply. Packaging essential to the product’s function, such as a tin can, is also covered, but materials purchased or inventoried before Jan. 31, 2013, should be outside the rule’s scope.
Retailers are not required to report on products bought or resold, only manufactured or contracted to manufacture. When contracting, the retailer’s degree of influence determines compliance, though it doesn’t need to be substantial.
What’s involved with complying?
First, a company should determine whether any products it manufactures or contracts to be manufactured contain conflict minerals necessary to functionality or production. If the minerals are necessary, but they didn’t come from covered countries or are from scrap or recycled sources, the company’s inquiry method and conclusion has to be annually disclosed on SEC Form SD. This information must also be posted on the company’s website.
However, if there’s reason to believe the minerals originated from covered countries, their origin is unknown, or they may not be from scrap or recycled sources, the company must perform due diligence on the source and chain of custody of the minerals.
After due diligence, if the issuer determines that its conflict minerals are from a covered country and not from scrap or recycled sources, the company will be required to file a Conflict Minerals Report as an exhibit to Form SD. An independent audit of the Conflict Minerals Report is required. The SEC estimates that 75 percent of companies subject to the Act will need to develop a Conflict Minerals Report and have it audited.
What is the timing for compliance?
The first filing isn’t due until May 2014 for the 2013 calendar year, but complying may require substantial preparation for public companies. Companies will also need to file a new Form SD annually by May 31.
What are some next steps for companies?
Management must determine whether the new rule impacts the company, prepare cost estimates for compliance and put a plan in place. Companies should identify products that may contain conflict minerals as soon as possible, keeping in mind that they must comply even if the product contains only small traces of a mineral. Companies should be prepared to report results on a product-by-product basis. Finally, they should work with advisers to develop policies and procedures for supply chain vetting, filing Form SD, and if needed, conducting due diligence and preparing and auditing Conflict Minerals Reports.
Dale Jensen, CPA, CFE, is partner-in-charge, SEC Practice, at Weaver. Reach him at (972) 448-9283 or Dale.Jensen@WeaverLLP.com.
Blog: To stay current on audit, tax and advisory issues that may impact your business, visit Weaver’s blog.
Insights Accounting is brought to you by Weaver
Recently a number of corporate tax and accounting professionals were surveyed to gain insight into their tax provision process. They identified three major issues with their provision process:
- Data collection — the provision model does not contain all of the required financial information.
- Resource constraints — the tax provision process is very labor intensive.
- Timing — more than half the companies surveyed reported that they have less than one week to prepare their consolidated tax provision.
The survey clearly demonstrates the need for automation. Corporate tax executives understand an automated system provides the standardized platform to consolidate data, eliminate many of their manual processes and be more time effective.
Tom DeMetrovich, director at Crowe Horwath LLP, says the survey results are indicative of the challenges faced by most corporate tax departments.
“Responsibilities are increasing and staffing trends generally are flat,” he says. “Implementing a Web-based software tool, such as the Thompson Reuters ONESOURCE Tax Provision, can be the solution that most corporate tax departments are seeking.”
Smart Business spoke with DeMetrovich about automating the tax provision process and the capabilities provided by a software solution to address the three major concerns expressed in the survey.
How can an automated solution assist with data collection?
An automated solution allows a company to consolidate the majority of its data into one platform. The software can interface with the existing accounting or financial reporting system and upload the required financial information. The software also is able to roll data forward from period to period. There’s no need to manually update and reconcile multiple Excel schedules for the new year or roll forward Excel workbooks. This functionality significantly reduces time spent gathering data and eliminates many of the errors in the current process.
How can an automated solution assist with resource constraints and timing?
Reducing the need for manual processes frees up corporate resources to handle more strategic, higher value tasks, leading to increased review time and increased time for analysis and forecasting.
An efficient, automated solution also reduces the time needed for processing the provision. The system allows multiple users to access and update the provision calculation in a controlled, secure environment. Therefore, the provision calculation is done more timely and accurately, which allows additional time for analysis, adjustments and reporting.
Can the software be implemented in-house?
Companies rarely implement a provision system in-house. The project generally is undertaken in conjunction with an outside provider, whether an accounting firm or the software provider. Tax departments have knowledge of their current provision process but lack the depth of knowledge necessary to select, install, configure and train their personnel on the new software.
The benefit of using an accounting firm for implementation is that the firm provides in-depth knowledge of the software and has broad-based knowledge of tax and the provision process. The company also has access to the accounting firm’s knowledge of its industry. The firm can:
- Align software to the company’s current processes.
- Make sure processes are correct from a technical tax standpoint.
- Use industry knowledge to provide best practices that can be incorporated into the new automated process.
Once implemented, can tax departments manage the software without assistance?
Once the software has been properly installed, configured, tested and training has been completed, the tax department staff should be able to maintain the software. One of the biggest benefits to a Web-based solution is that the company’s internal IT group rarely has to be involved. Software updates are handled directly by the software provider. And, the tax department will be able to handle updates for changes in general ledger accounts, the addition of new entities and other enterprise-wide changes.
Tom DeMetrovich is a director at Crowe Horwath LLP. Reach him at (214) 777-5272 or Tom.DeMetrovich@crowehorwath.com.
More information on tax provision automation.
Insights Accounting is brought to you by Crowe Horwath LLP
Decent bosses typically try to lead by example. As a leader, you must model appropriate behavior to promote the greater good and to send a constant message with teeth in it.
The French term “esprit de corps” is used to express a sense of unity, common interest and purpose, as developed among associates in a task, cause or enterprise. Sports teams and the military adopt the sometimes-overused cliché, “One for all and all for one.” “Semper Fi” is the Marine Corps’ motto for “always faithful.” We commonly hear, “We’re only as strong as our weakest link.”
However, the real test of team-building and motivational sayings is that they are good only when they move from an HR/PR catchphrase to a way of doing business — every day.
As soon as you put two or more people in the same room, a whole new set of factors comes into play, including jealousy, illogical pettiness and one-upmanship, all of which can lead to conflicts that obstruct the goals at hand. Certainly, much of this is caused by runaway egos. Perhaps a little bit of it is biological, but most of it is fueled by poor leadership. Everyone has his or her own objective and it’s the boss’s responsibility to know how to funnel diverse personal goals in order to keep everyone on track. This prevents employees from straying from the target and helps avoid major derailments. Essentially, it all gets down to the boss leading by example with a firm hand, understanding people’s motives and a lot of practicing “Do as I say and as I really do myself.”
Communicating by one’s actions can be very powerful. A good method to set the right tone is stepping in and lending a hand, sometimes in unexpected and dramatic ways. This shows the team that you govern yourself as you expect each of them to govern their own behavior. In my enterprises, I constantly tell my colleagues that the title following each person’s name boils down to these three critical words: “Whatever it takes.” Certainly, I bestow prefixes to this one-size-fits-all, three-word title, such as vice president or manager, but I consider these as window dressing only.
After speeches, when I explain this universal job description, I always get questions from the audience about how I communicate this concept. I follow with a real-life experience that played out in the first few months after I started OfficeMax. As a new company, we had precious, little money, never enough time and only so much energy, which we preserved as our most valuable assets in order to be able to continually fight another day.
In those early days, too frequently, I would see what looked like a plumber come into the office, go into the restroom and emerge a few minutes later presenting what I surmised to be a bill to our controller. I knew whatever he was doing was costing us money and probably not building value. The third time he showed up, in as many weeks, I immediately followed him into the restroom (much to his shock and consternation). I asked him what in the world kept bringing him back. He then proceeded to remove the john’s lid and give me a tutorial on how to bend the float ball for it to function properly. That was the last time anyone ever saw this earnest workman on our premises. Instead, after making known my newly acquired skill, whenever the toilet stopped working, I became the go-to guy.
This became an object lesson to my team about how to save money. At that time, 50 bucks a pop was a fortune to us. It got down to people knowing that all of us in this nascent start-up were expected to live up to their real, three-word title. This was our version of how to build esprit de corps. Others began boastfully relaying their own unique “whatever it takes” actions, and it became our way of doing business.
The lesson I learned in those early days was that it wasn’t always what I said that was important but rather what I did that made an indelible impression. A leader’s actions, with emphasis on the occasionally unorthodox to make them memorable, are the ingredients that contribute to molding a company’s culture.
Michael Feuer co-founded OfficeMax in 1988, starting with one store and $20,000 of his own money. During a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling this retail giant for almost $1.5 billion in December 2003. In 2010, Feuer launched another retail concept, Max-Wellness, a first of its kind chain featuring more than 7,000 products for head-to-toe care. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. Reach him with comments at firstname.lastname@example.org.
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Steve Jobs was the master of spotting trends and the opportunities that go with them. He was so good at it that he could see trends when they were still in their infancy. This allowed him to create products that kept his company at the front of the waves of change and ultimately drove massive profits and stock growth for Apple.
While not many people possess the uncanny sixth sense that Jobs had, it’s important to spend time studying your industry and what’s happening at various levels, from customers to suppliers to competitors.
You need to recognize when the trend is pushing positive growth and when it’s not. The additional challenge is to know the difference between a trend and a fad. A trend is more long-lived and drives a lot of long-term opportunity, while a fad tends to burn out quickly. This isn’t to say that trends last forever, because they don’t. An important part of studying trends is to know when to jump off the wagon and find the next opportunity, because if you ride a trend too far, you may find yourself in a rapidly declining industry or an area of waning interest.
For example, Y2K was a fad. For those who don’t remember, the Y2K boom was caused by old computers that only saw years as two digits instead of four, and widespread computer issues were predicted if systems weren’t upgraded. A giant boom in computer consulting and sales resulted from this issue, but it was short-lived. The moment 2000 rolled around, the need for Y2K upgrades dried up.
The dot-com boom, which was partly fueled by Y2K, was a trend. For a number of years, a ridiculous amount of money was being thrown at any project that contained the word “Internet,” regardless of its business model or competitive factors. While it was active, there were plenty of online growth opportunities for businesses to take advantage of.
Those who recognized the trend were able to capitalize on it, and more importantly, those who recognized the end of the trend were able to cash out before it went bust. Not every trend will be as big as the dot-com boom, and depending on your industry, they may not be so obvious.
Finding and recognizing trends starts with studying your industry. You need to stay in tune with what’s happening with competitors and constantly read about not only your industry but related ones as well. Talk to suppliers and vendors to get their opinions as to what direction your markets may be headed. But the most important thing may be to have an open mind. Don’t assume that because something hasn’t changed for 20 years that it isn’t ever going to change.
With an open mind, you are more likely to recognize an emerging trend before everyone else has rushed to capitalize on it, putting you ahead of the curve. Once you are exploiting a trend, you have to be equally diligent to know when it’s going to end, and that’s done in a similar fashion to identifying it in the first place: Stay plugged in to your industry.
These are exciting times and change is all around us. Look for the hidden clues that can lead you to the next big opportunity, and never stop challenging your own beliefs. The CEOs who do the best over time are the ones who don’t accept the status quo.
Fred Koury is president and CEO of Smart Business Network Inc. Reach him with your comments at (800) 988-4726 or email@example.com.
When the Supreme Court upheld the Patient Protection & Accountable Care Act (ACA) last year, the implementation of sweeping changes that will result from health care reform kicked into high gear. With many ACA provisions taking effect in 2013 and 2014, businesses and individuals can now better understand the impact of the law.
Access to care
ACA includes several new avenues for individuals to access care, including expansion of state Medicaid plans, incentives for employers to offer health care coverage and access to insurance exchanges for individuals who do not qualify for Medicaid and are not covered at work.
ACA removes the ability for insurers to deny coverage due to pre-existing conditions but also requires all individuals to have coverage or face a penalty.
The most significant impact for businesses is the requirement to provide employer-sponsored health coverage or pay a penalty. In general, starting in 2014, any business with more than 50 full-time employees is required to offer affordable health coverage that meets minimum coverage criteria. If a business does not offer coverage, or offers coverage that is not affordable, the penalties would be as follows:
- If a business does not offer coverage, the annual penalty is $2,000 per employee in excess of 30. (That is, if a business has 100 employees, the penalty would be 70 x $2,000, or $140,000.)
- If a business offers coverage that is deemed unaffordable, the penalty is $3,000 for each employee who receives a premium credit to access care through an insurance exchange.
As businesses prepare for these changes, they should determine which full-time employees must be offered coverage, ensure that premiums charged to employees are low enough to be affordable and be sure benefits offered under the plan meet ACA minimum requirements.
While small employers are exempted from many of these provisions, they are encouraged to offer coverage in exchange for a health insurance premium credit. In general, employers with 25 or fewer full-time employees whose average pay is less than $50,000 can receive a credit of up to 50 percent of health insurance premium paid, as long as they pay at least 50 percent of the cost of the single premium for their employees.
Impact on patient care
While most ACA provisions do not directly impact an individual’s health care choices, many patients will notice changes in the way doctors and hospitals deliver care. For many years, most payments to providers have been based on the volume of services provided. ACA creates a significant focus on quality of patient care and outcomes, rewarding or penalizing providers based on these factors. These changes are driving hospitals, physicians and insurers to align so they can better manage the care of a patient population, via organizations called Accountable Care Organizations (ACO).
The goal of an ACO is to reduce the cost of patient care by managing the way care is provided, mainly by ensuring it is provided in the right setting. ACOs often include patient navigators or gatekeepers that help patients access the right type of care, ensure that chronic conditions are treated appropriately and coordinate care from different providers to limit duplication of services.
Patients participating in an ACO can expect more direct contact from caregivers and will be asked to take ownership of their health care outcomes. Employers may be asked to offer more wellness benefits and encourage healthy habits to aid in the success of an ACO.
Paying for ACA
ACA’s $940 billion cost is paid for through several means, including payment reductions to providers and increased taxes.
Tax provisions include numerous business taxes, such as excise taxes on high-cost health plans and medical device manufacturers, annual fees paid by insurance and pharmaceutical companies and limitations on certain corporate income tax deductions.
For individuals, taxes include a 0.9 percent Medicare tax on earned income in excess of $250,000 for joint returns ($200,000 for other filers) as well as a 3.8 percent Medicare tax on net investment income. Other individual provisions include:
- If an individual does not purchase the minimum level of coverage required by ACA, then a penalty equal to the greater of 1 percent of income or $95 applies in 2014. This increases to 2 percent or $325 in 2015 and then 2.5 percent or $695 in 2016 and after. The ACA includes premium assistance credits that can be used to offset this cost for qualifying taxpayers.
- Pre-tax contributions to a health flexible spending account will be limited to $2,500 per year.
- The threshold for deducting medical expenses as an itemized deduction was increased from 7.5 percent to 10 percent of adjusted gross income.
Although most of these provisions will be effective in just nine months, there are many details yet to be finalized. For example, most state and federal insurance exchanges are not functional yet, so the manner in which individuals will enroll is not clear.
Also, while Medicaid expansion was a key component of ACA, it is voluntary on a state-by-state basis. Certain states may elect not to expand Medicaid, which could impact patient access to care as well as the financial health of hospitals. (Certain payments to hospitals are being reduced in anticipation of increased Medicaid volume. If a state does not expand Medicaid, the payment cuts still occur.)
Businesses and individuals should closely monitor the final rollout of ACA and contact advisors to be sure they are making the right choices to limit the financial impact of these changes.
This information was written by Tom Watson, managing partner of BKD’s Dallas practice. He can be reached at firstname.lastname@example.org or (972) 702-8262. Applying specific information to your situation requires careful consideration of facts and circumstances. Consult your BKD advisor before acting on any matter covered here.
Article reprinted with permission from BKD, LLP, bkd.com. All rights reserved.
It’s an age-old debate: Is character determined by DNA or upbringing? Nature versus nurture?
Most would argue that character evolves from both. What about companies and their cultures? Is a company’s culture merely a composite of the executives and employees who work there or can a culture be nurtured?
If left to chance, a corporate culture will evolve naturally, but stronger, healthier cultures are nurtured along the way. That doesn’t mean you can manufacture one. At its core, a culture is how a company gets things done. Executives can’t invent an ideal culture that doesn’t align with the way the company actually operates. However, you can help refine your company’s culture and character. Start with the following three steps.
Identify your company’s core values.
A strong company culture, good or bad, reflects the values of the company, its leaders and its employees. What values define your company? What matters most — profits, philanthropy, innovation, safety? If you don’t know, poll your employees. They will have a pragmatic perspective of how things get done.
Once you identify your company’s core values, prioritize the three to five values that are most important. What do you want to be known for — quality, integrity, or just plain fun? Keep in mind, this is not what you do; it’s how you do it. An orthopedic surgeon may be skilled at fixing broken bones, but he gets referrals because of his genuine concern for patients.
Align your actions to your values.
It’s not enough to identify your company’s core values. You also have to walk the talk. Tiger Woods enjoyed a reputation for being a remarkable athlete with extraordinary discipline and sound ethics. However, when revelations of his extramarital affairs surfaced, his reputation was forever tarnished. He’s still considered a great golfer, but no one believes he’s the man he portrayed himself to be.
In the same way, you can’t promote your company as being fair and then challenge your partners at every turn. You’d be better off acknowledging that your company is aggressive. If you try to pass your company off as something it isn’t, you’ll ultimately damage trust with customers.
How can you help ensure that team members model your company’s values day after day? Institute practices that promote your values and the behaviors you want your employees to emulate.
Google, for example, is known for creativity, and its leaders practice what they preach. Google encourages developers to dedicate the equivalent of one day a week to innovative projects outside their job descriptions.
Engage your employees.
The most important, and perhaps the trickiest, piece to this puzzle is engaging employees. Jack Welch, former CEO of General Electric, once said, “The soft stuff is the hard stuff.” The touchy-feely, people side of business is often the most difficult for leaders to manage well, but it is critical to a company’s success. Employees who are satisfied and truly engaged in their work will perform at a higher level and contribute to greater success and higher profits.
Engaging employees is easier said than done (in fact, it’s never “done” — it requires continuous dedication and focus). There are, however, some practical tactics that can help.
For starters, communicate openly, include employees in the decision-making process whenever possible, and seek and provide continuous performance feedback. Show your employees that you care what they think and that you want them to succeed.
Can you nurture your company’s culture? Absolutely, but it has to emanate from your core values and employees have to model those values. The result will be engaged employees who reflect your culture because it’s simply how your company gets things done.
John Allen is president and COO of G&A Partners, a Texas-based HR and administrative services company that manages human resources, benefits, payroll, accounting and risk management for growing businesses. For more information about the company, visit www.gnapartners.com.
Jim Treliving led Boston’s Restaurant through a period of super-tight lending by creating his own financing divisionWritten by Peter Fehrenbach
Six years ago, Jim Treliving started to see troubling signals in his business. The restaurant franchising boom that had been rolling since the end of the 2001 recession was starting to slow because money was getting tight and financing for franchisees was drying up. Thus, the robust growth that Treliving’s company, Boston’s Restaurant & Sports Bar, had enjoyed for the previous half-dozen years was starting to slacken. c
“The main challenge I’ve had to deal with these last few years has been with the financial portion of our business,” says Treliving, whose company today operates 400 franchises in the United States, Canada and Mexico and generates systemwide sales of more than $1 billion. “The financing situation has really changed a lot since 2006 or so. Up until then, the franchisees we dealt with had lots of avenues to get financing for their business.”
The easy-money trend in restaurant franchising started to tail off in 2006 and 2007, and then it began dropping at an even faster rate in 2008 during the most recent recession.
“The financing really dried up,” he says.
Treliving started as a franchisee with Canada-based Boston Pizza in British Columbia in 1968 and eventually bought out the entire Boston’s restaurant chain in 1983.
“This has really affected just about everybody in most small-business market sectors. Small-business growth in the United States has really been negatively impacted by the inability to find sources of financing.”
Nowhere has that trend been felt more acutely than in the restaurant-chain business.
“It has taken a toll on us, especially when it comes to trying to attract new franchisees into the business,” Treliving says. “New franchisees generally need to have a down payment of 20 to 35 percent of the cash available to go into business. Nowadays, even [potential franchisees] who do have that amount on hand are having trouble getting banks and other financial institutions to do any kind of work with them in the sense of taking a chance on them.”
Today’s persistently low interest rates make it hard on those who want to start businesses because finance companies are less inclined to take chances on small businesses when their potential returns are so low.
“Most of the banks we’ve talked to in the U.S. — even though they’re in a situation where their balance sheets are OK — they’re not lending money for small businesses,” Treliving says. “And it’s not just the banks; it’s all types of financial institutions. Obviously, any type of lender is going to require a return on its money, and if you’re buying the money at a bank at 2 percent and you’re lending it out at 3 or 4 or even 5 percent, you’re not going to make a lot of money on it. That’s why they’re not taking many chances on people who want to start small businesses.
“It’s funny; these days a lot of people in this business are saying, ‘The good thing is we’ve got these low interest rates — and the bad thing is we’ve got these low interest rates.’ It’s really a tough problem.”
Give partners slack
The financing problems that Boston’s and other small and midsized restaurant companies have been facing isn’t limited to just attracting new franchisees. It’s also affecting the ability of the company’s existing franchisees that want to expand their businesses by opening new restaurants within their territories.
“A lot of our franchisees bought territorial pieces,” Treliving says. “We entered into agreements with them back when we sold them their first store that they would open a certain number of additional restaurants in their territory over a certain period of years. We mutually agreed, and an important part of that agreement was that we had to make sure that they’re on solid financial footing before moving to the next level.
“Unfortunately we’ve had a fair amount of franchisees that, even though they have a good solid track record, when they’ve reached the date when they’re supposed to build that next store in their territory, they couldn’t get the financing they needed to do it.”
Boston’s approach in these situations has generally been to give its existing franchisees more time to strengthen their market footing so they would eventually be able to obtain financing to build the additional stores in their territories.
“The plan was that they agreed to build a certain number of stores in their territory in a certain period of time, and if they didn’t — if they failed to do that — then they would lose their territory, and they would lose the money they had paid in upfront fees to hold their territory,” Treliving says.
“We began to see with many of them that we’d have to wait a little while, until the money [for financing] started to loosen up again. We saw that we would need to reset those dates so our franchisees would have more time to build those new stores and not lose their territories. We basically had to rectify the dates so we wouldn’t go offside with our franchisees.”
“So this financing situation has really slowed down the growth of everybody — not just new franchisees, but old franchisees as well.”
Find other sources
Even though the lending picture hasn’t been good from traditional sources of financing for restaurant franchises — i.e., banks and large finance companies such as GE Capital and others — Boston’s and other restaurant chains have had a degree of success finding financing for some of their franchisees via nontraditional sources such as private equity firms.
“A lot of people are going out and finding independent money on the side,” Treliving says. “So we started looking as well for some of these new sources that would deal with us. For many years, we had been dealing with a couple of major companies for financing, but now one of them had pulled out of the business completely, and the other one had quit lending new money for restaurant franchises.
“So we had to look for other avenues, whether it was banks or individuals or private equity that had been sitting on the sidelines and were now saying, you know, ‘Maybe we should jump into this business.’”
With some legwork, Boston’s was able to uncover some of these smaller, off-the-beaten-path financing sources. In so doing, the company was able to keep growing, albeit at a slower pace, even during the four-year downturn when traditional financing was very tight for the restaurant business.
“We had to go and look for some of those individuals and private firms,” Treliving says. “Most of them are regional. People are more likely to lend money to nearby sources, wherever they happen to be, because they can drive by and see the property, so they know where the money’s being spent and how it’s being spent. If you look at 90 percent of the restaurant chains around the country, everybody was going through the same thing. They were knocking on doors everywhere.”
Do it yourself
Lending from the traditional sources has started to loosen up a bit over the past year, but Boston’s has decided it isn’t going to rely so heavily on those traditional sources anymore. The company has decided to take a big step forward and create its own financing division to help its franchisees grow.
“We’re putting a package together right now to do that,” Treliving says. “We’re well on our way to develop our own financing. The first thing we’re going to do is go and help our existing franchisees that want to expand but can’t get the capital they need to do it. We’ll be willing to lend them money, because we’ve seen what they’ve been capable of doing over the last five or 10 years. They’ll be our first customers.
“The next ones will be potential new franchisees that we think have a great opportunity to get into the business now. We’ve been starting to receive a fair amount of inquiries about this, now that things have started to loosen up a little bit financewise.”
Asked what he has learned and what advice he would give other executives facing similar problems with tight lending inhibiting their growth, Treliving says he suggests that you choose your dance partners very carefully.
“I’ve talked to other CEOs in various businesses, and it’s really all about quality now — the quality of who you’re going to do business with,” he says. “The quality of franchisees you’re getting is what you should be looking at now — the strength of the person going in. It’s not just simply about grabbing anybody that’s got a warm body and going into business with them anymore.”
Treliving says that containing costs and reinvesting in quality service are more important now than ever, and not just in the restaurant-chain sector or the food-service sector but in all service-oriented businesses.
“You really need to be watching your costs right now,” he says. “It’s an absolute necessity. And your service has to be absolutely top-notch all the way through your operation. You can’t get away with anything less than that. If you’re willing to do these things, this can really be a great time to get into a business and have success with it.”
How to reach: Boston’s Restaurant & Sports Bar, (972) 484-9022 or www.bostonsgourmet.com
The Treliving File
Chairman and CEO
Boston’s Restaurant & Sports Bar
Born: Virden, Manitoba
What was your first job, and what business lessons did you learn from it that you use today?
I delivered groceries for a family that owned a small grocery store, and I think the biggest thing I learned was persistence — the stick-with-it sort of thing. The place where I delivered groceries — it was very important that they be delivered on time. You had to come there clean and ready to go to work. And you had to provide great service. That was extremely important, the service aspect of it — being on time and getting the groceries out to people right away. Those things stuck in my mind when I went into the restaurant business.
Do you have a main business philosophy that you use to guide you?
I believe very much in dealing with people on a face-to-face basis. And I want to do business with people that I can have fun with — people that enjoy the same things I do.
What trait do you think is most important for a business executive to have in order to be a successful leader?
You have to have honesty and integrity. You have to be honest with your people, and honest with the franchisees you’re dealing with. Of course it’s inevitable that you’re going to have problems with your franchisees from time to time. But you sit down and discuss it with them so that you understand their side and they understand your side. And then you both make a decision on what you’re going to do, and you go forward with it together, as a team.
What’s the best advice anyone ever gave you?
My dad gave me a couple of good pieces of advice a long time ago: Always leave a little something on the table for somebody else, and always work hard and do the things that you want to do, that you enjoy doing.
While traveling around the U.S. and Canada training managers on the importance of embracing the generational workforce, I have noticed a consistent theme: Managers want to know how they can do a better job engaging their employees.
Every company can’t be like Facebook or SAS, where amenities such as free on-site medical care for employees and their families, low-cost/high-quality child care, a fitness center, a library, and a summer camp for employees’ children are the norm. Or like Google, which provides free food, fitness facilities, massage rooms, hair dressers, laundry rooms and on-site doctors. So what are you to do?
First, you have to understand what employee engagement is and the impact that the lack of employee engagement can have on your company or business.
Wikipedia defines employee engagement as the extent to which employee commitment, both emotional and intellectual, exists relative to accomplishing the work, mission and vision of the organization. Employee engagement has become an area of focus within organizations because it boosts employee retention, thereby helping companies avoid expensive employee replacement costs resulting from staff members who voluntarily quit their jobs.
According to the Society of Human Resource Management, the cost of replacing one $8-per-hour employee can exceed $3,500. Information like this obviously gives companies a strong financial incentive to maintain their existing staff members through strong employee engagement practices.
Organizations that recognize that higher employee retention, increased productivity and reduced absenteeism all have financial impact will see that their employee engagement efforts make sound business sense. Engaged workers tend to complete tasks faster, get higher customer service ratings and demonstrate greater loyalty.
Use these five quick tips to improve employee engagement starting today.
? Build trust: Employees need to be able to trust their managers and their company’s leaders. Clear communication is a key element of trust. To build trust, monitor how and what you communicate to people around you. In organizations under stress, sometimes it’s difficult for leadership to be completely forthcoming. Few people expect everything to be perfect all the time.
? Create connections: People want to have meaning in all aspects of their lives. If they do not feel the importance of what they do, they disconnect. Therefore, it is important to highlight the connections between things and people. Help employees see the big picture of how their role and objectives fit into the organization’s objectives.
? Appreciate people: Recognition is an important part of motivation and engagement, and it can be as simple as genuine appreciation. Praise people when it’s warranted and give credit where credit is due. The best recognition is immediate, specific and personal.
? Motivate others: Motivation is our desire or willingness to do something. An organization where people are willing and able to work toward a common goal is stronger than one where people are badgered, threatened or generally reluctant.
? Support growth: There is nothing more demotivating than feeling you’re in a dead-end job. Talk to employees about the directions they’d like to see their career paths take and help them identify opportunities for personal and professional development that will help them achieve those goals.
You don’t have to be a manager or leader of an organization to build trust, create connections, appreciate people, motivate others and support growth. Anyone at any level can make a difference in the work lives of those around them. The payoff shows up in increased innovation and productivity, lower turnover, lower sickness rates, and higher employee satisfaction. In a world warring for increasingly sparse talent, the importance of a strong employee engagement program should not to be underestimated.
Sherri Elliott-Yeary is the CEO of human resources consulting companies Optimance Workforce Strategies and Gen InsYght, as well as the author of “Ties to Tattoos: Turning Generational Differences into a Competitive Advantage.” She has more than 15 years of experience as a trusted adviser and human resources consultant to companies ranging from small startups to large international corporations. Contact her at email@example.com.
The Patient Protection and Affordable Care Act imposes two new Medicare taxes — one on wages and self-employment income and one on net investment income.
“As a result, executives subject to these new Medicare taxes will now incur a 3.8 percent Medicare tax on most of their taxable income,” says Mark Watson, partner, Houston Tax and Strategic Business Services, at Weaver.
Smart Business spoke with Watson about what this new tax means for executives.
How will the Medicare tax impact wages and self-employment income?
Beginning this year, an additional 0.9 percent Medicare tax is imposed on wages and self-employment income in excess of $250,000 for joint filers and $200,000 for single filers. So, the total Medicare tax on wages and self-employment income is now 3.8 percent, up from 2.9 percent.
If a couple files a joint return, the added tax is imposed on their combined wages and self-employment income. Employers must withhold this additional tax on wages paid to an employee in excess of $200,000 in a calendar year. This withholding applies even though the employee may not actually be liable for the additional tax because, for example, the employee’s wages with that of his or her spouse doesn’t exceed $250,000. Any excess withheld Medicare tax will be credited against the total tax liability shown on the employee’s income tax return.
The $250,000 and $200,000 threshold amounts aren’t indexed for inflation. So, over time, more executives will likely be subject to the additional Medicare tax.
How is net investment income affected?
Many executives also will be subject to a new Medicare tax on their unearned income in 2013. This new tax, commonly called the ‘net investment income tax,’ applies to individuals, estates and trusts when income exceeds $250,000 for joint filers, $200,000 for single filers and $11,950 for estates and trusts, and equals 3.8 percent of net investment income.
Net investment income equals investment income less properly allocable deductions. Investment income includes:
• Gross income from interest, dividends, annuities, royalties and rents.
• Gross income from a passive activity.
• Gross income from a trade or business of trading in financial instruments or commodities.
• Net gain from the sale of property.
• Gross income and net gain from the investment of working capital.
However, gain excluded from taxable income, such as gain on the sale of a personal residence and gain deferred through a like-kind exchange, isn’t included in investment income. Similarly, gain from the sale of certain property used in a non-passive trade or business isn’t included.
Properly allocable deductions include:
• Deductions allocable to rent and royalty income.
• Deductions allocable to income from a passive activity and to a trade or business of trading in financial instruments or commodities.
• Penalties imposed on early withdrawal of funds from a certificate of deposit.
• Investment interest expense.
• Investment adviser fees.
• State/local taxes on investment income.
In the case of an estate or trust, deductions also are available for distributions of net investment income to beneficiaries.
How can these taxes be minimized?
Executives subject to the net investment income tax and the maximum federal income tax rate — applying to joint filers with annual income in excess of $450,000 and to single filers with annual income in excess of $400,000 — will face a 43.4 percent federal tax rate on ordinary income and 23.8 percent federal tax rate on long-term capital gains and qualified dividends. Minimize taxable net investment income by:
• Documenting and claiming all allocable deductions.
• Making distributions from an estate or trust to beneficiaries with income below $250,000 or $200,000 who are not subject to the tax on net investment income.
• Investing through tax-sheltered investment vehicles such as 401(k) plans, Individual Retirement Accounts, annuities and life insurance policies.