Curt Harler

Tuesday, 25 November 2008 19:00

Data-enabled wellness

Every organization is concerned about employee health and wellness. But, while implementing a wellness system can be quick and painless, keeping track of it is anything but.

Many innovative organizations have turned high-tech in tracking their employees’ wellness, according to Phyllis Marino, senior vice president of marketing and public relations for the Akron General Health System.

“Once both management and workers get past some initial hurdles, a data-enabled wellness system can offer big returns,” says Marino. “Workers get healthier. Employers cut benefit costs and reduce absenteeism.”

Smart Business spoke with Marino about data-enabled wellness programs and what to look for in a good program.

What is a data-enabled health program?

There are several online services available to help companies implement and track wellness and health programs. They help the company make the operation more efficient and effective. Most companies that start a program give incentives to employees who enter their data and reward their participation when they reach certain goals.

What makes a good program?

The city of Dublin, Ohio, is self-insured, and it pays for employees’ insurance contributions if they participate. It also uses internal resources to implement its Health by Choice program. Human resources tracks internal involvement and answers employee questions. The budget manager provides analysis of impact on claim costs and the recreation staff has a part-time employee dedicated to the program. The recreation staff administrator runs the voluntary program. There are two committees that meet once a month to discuss the program and communicate ideas.

The city’s per capita cost of screenings and coaching services averages $110. An annual health fair, which includes various screenings, costs $3,000. The city waives employee contributions if both the worker and covered spouse participate in the program. The city figures high-risk workers cost more than $5,600 to insure, but low-risk employees only about $2,500. Through the program, the city was able to increase the number of low-risk employees by 7 percent to 72 percent, and cut high-risk employees from 11 percent to 7 percent. Each person who moved from high to moderate risk reduced claims by nearly $2,200, while each person who moved from moderate to low risk reduced costs by $700.

Will a program consume a lot of resources?

A well-run program does not take a lot of resources or space, especially since program tracking is online. There will be some personnel time commitment, of course. There has to be administrative time allocated if you expect to implement positive change. With an online program, the employee can enter data from home, over the weekend or after a visit to a health care professional.

What information should be tracked?

Most companies have their employees go through a health risk appraisal. A typical program tracks basic health factors like blood pressure, cholesterol reading, glucose levels and body fat index. The two key measurements are blood pressure and cholesterol. Health risk appraisals take the information the client enters and give a readout on where the client should be — for example, giving a target range for blood pressure readings. The program then tracks workers’ progress. Innovative companies reward their workers when they achieve a goal in any one of the categories. Generally, to achieve a goal, a worker has to get his or her reading into the accepted range for that measurement.

Who controls the data?

Typically, the HR department is responsible for tracking data. It makes sense, especially if there is a reward program tied to the employee benefit package. And, the Health Insurance Portability and Accountability Act (HIPAA) applies and the data has to be protected. You have to get the employees’ written permission to look at the data. Most companies will get their employees’ permission to access the data so they can track progress.

How long should a program last?

This is not a quick fix. If you start a program and align incentives correctly, you have to keep with it for the long haul. I think a one-year commitment is the minimum. You might want to just dip your toes into a program first. A good place to start is a smoking cessation or weight-loss program. Both can give rapid, positive returns and both will serve as proof-of-concept for expanding into a more complete program.

What is the payback?

If you run a good program, the benchmark for return on investment is about a 3 percent reduction in insurance costs. A program like Dublin’s will have an even better return. Of course, there are the immeasurable returns on the program like a happier, healthier work force and the employees’ appreciation for what management has done for them. Dublin figures the ‘cost of doing nothing’ would result in increases of 47 percent in claims costs over three years. But, in actuality, the city experienced a more modest rate of increase, about 5.5 percent per year.

PHYLLIS MARINO is the senior vice president of marketing and public relations for the Akron General Health System. Reach her at

Short-term lines of credit (SLCs) are different animals from the usual real

estate or other loans that a business might obtain from a bank. Using short-term

money for the wrong purposes can land a

business in hot water.

Smart Business spoke to Chris Ramos,

commercial banker with Fifth Third Bank in

Cincinnati, who works with SLCs on a daily

basis, for some tips on how businesses can

use SLCs to their best advantage.

How does a banker evaluate requests for an


Perhaps the most critical element of any

loan is the confidence the lender has in the

shareholders and managers of the borrowing company. These individuals and the

decisions they make are the key to the financial viability of the business and the repayment of the loan.

Nearly every commercial bank loan

involves a company with a historical track

record of positive cash flow and a balance

sheet that allows the company to continue

meeting its financial obligations. Ideally,

lenders also prefer that the borrower would

pledge collateral assets to support the loan

further. Banks accept a relatively small

return on their loans (typically 2 to 4 percent). This model works when the bank

keeps losses well below 1 percent of total

loans. The need for collateral arises from

the desire to assure that — even if a business fails — the loan will be repaid.

Describe a typical SLC arrangement.

Typically, a bank provides a line of credit

with a maximum borrowing amount.

During the term of the loan, the borrower

may borrow up to the maximum line

amount or pay down the facility (any or all

of the facility) at any time. In some cases,

the borrowing and pay down can be automated using a loan sweep product. The loan

sweep allows for funds to be automatically

advanced from the loan to maintain the

company’s cash position.

If a company is growing rapidly, an asset-based revolving line of credit can be the best

way to leverage short-term assets. This specialized SLC allows a company to maximize its borrowing capacity on its most liquid

assets — accounts receivable and inventory.

The asset-based line of credit relies heavily on the liquidation value of the company’s

accounts receivable and inventory. These

lines of credit usually limit the amount borrowed to a specified percentage of accounts

receivable and inventory. These percentages allow the lender to take comfort in its

ability to be repaid by the liquidation value

of the company’s short-term assets. As a

company’s borrowings increase, the lender

often will monitor these short-term assets

more carefully to assure that liquidation

value remains sufficient to retire the loan.

What are some of the common uses for


SLCs finance the growth of short-term

assets like accounts receivable and inventory. As sales grow, the need to support higher

inventory and receivable balances also


An SLC might also be used to take advantage of discounts offered by a company’s vendor. For example, if a vendor offered a 2 percent discount to pay in 10 days versus a typical 30-day term, a company would be well-served to borrow on its line of credit.

How available are SLCs for businesses now?

Financial markets have tightened in the

last 12 to 18 months. Capital is less plentiful.

For high-quality companies, SLC remains

readily available. SLCs are the type of

financing most banks are the most comfortable with because the short-term assets

securing the loan can usually be liquidated

more quickly than long-term assets.

As a company’s balance sheet becomes

more leveraged, an asset-based loan

becomes an appropriate alternative. These

loans continue to be available to businesses that have high-quality inventory and


How can a business maintain the quality of

its short-term assets to increase borrowing


Accounts receivable and inventory growth

typically drive the need for SLC, but also provide the asset base to appropriately support

the loan. Maintain the quality of receivables

by keeping customers within stated payment terms. Lenders shy away from receivables that are more than 90 days past due.

Diversifying your customer base so that you

don’t appear overexposed to any particular

customer can help improve your chances of

borrowing against your receivables.

SLCs are typically renewed annually.

Many lenders, including banks, have additional capital costs when they provide SLCs

for longer than one year. If a borrower is

credit worthy for a line longer than one year,

the line can be provided. In this situation,

however, lenders will often charge additional commitment fees to help defray the capital costs for the longer-term line.

An SLC should ordinarily be used to

finance short-term assets. Long-term assets

should be supported with long-term financing. This protects the lender and the company. For a lender, perhaps the most inappropriate use of a short-term line would be

financing a company’s operating losses.

CHRISTOPHER RAMOS is vice president, middle-market commercial banking, with Fifth Third Bank in Cincinnati. Reach him at

(513) 534-3667 or

Thursday, 25 September 2008 20:00

Fifth Third Bank on funding rapid growth

Getting cash is only a part of the challenge in funding a company’s growth.

Perhaps the bigger challenge is using that cash wisely. Banks usually are delighted to offer a business loan to help fund a

company’s growth. However, they expect

the funds to be used wisely and invested


“Cash flow is the most critical piece of

the equation,” says Lori Geier, vice president and market manager of Fifth Third

Bank’s business banking division.

Smart Business asked Geier what kinds

of benchmarks she has for “wise” use of


As a banker, what do you look for when a

company wants money to grow?

Whether the growth plan is for an acquisition, to start a new product line or to

expand into a new market, there are three

things we consider. First, we ask whether

the business has a plan with a vision and a

strategy that are measurable and quantifiable.

Next, does the company have reasonable

projections that show its plan will generate

cash flow? Does it have the staff, machinery and the expertise to support its plan? In

other words, does it have a handle on its

true needs?

Third, is the plan reasonable and attainable? Does management have prior experience in rapid growth situations? What is the

company’s strategy to execute and evaluate

its success as it moves through time?

Of these factors, which is the most critical


Cash flow is the most critical piece. The

company has to understand its cash conversion cycle so it can calculate the true

cost of growth.

A company has to have a plan to maximize its inventory turns so it limits the time

it carries its inventory. Also, it should have

a good handle on the number of days it

takes to convert accounts receivable and

how long it takes to convert assets to cash.

Optimally, we want cash flow that will

allow a business to be able to cover obligations 1.25 times. Or, if we are looking at global cash flow, we want a ratio of about 1.6.

Are there other ratios a company must meet?

That varies by industry segment.

Businesses need to be in touch with what

they earn for every dollar they spend. A

new $10 million contract is not good for

growth if it costs $12 million to implement.

The ratios will be different depending on

the company and its industry, but we commonly look at ratios such as funded debt to

EBITDA, debt to tangible net worth, where

the lower the multiple the better. Working

capital ratios tells us if the company’s

‘engine’ is working. Return on equity

should be important to shareholders as

well as return on assets to show how effective the company utilizes its assets to create value.

How do you determine if a proposal makes


Whether you use bank equity or owner’s

equity, you have to do a solid cash flow forecast. Be your own devil’s advocate.

Write down your cash inflows and out-flows for at least 12 months, month by

month. We actually would prefer to see a

plan that covers three to five years.

The cash flow should show a realistic

picture of salary and benefit requirements,

insurance costs, added capital expenses

and maintenance costs, real estate requirements and additional costs of sales. With

these numbers on paper, you have a good

idea of whether you need a working line

of credit or a loan for capital expenses —

or both.

Are there red flags?

A good business plan will turn up any red

flags. Go over the plan with your financial

advisers, including your banker. Be sure

you leverage assets appropriately. Don’t

borrow with short-term assets over a long

period of time. An interest-only loan for

five years that is secured by accounts

receivable is not prudent. Match short-term credit with short-term assets.

Look at any contracts you are signing to

achieve anticipated growth. You shouldn’t

take a 10-year loan to buy a piece of specialized equipment, which supports a

three-year sales contract. Or, be sure you

are nimble enough to downsize yourself if

you end up carrying a big piece of equipment on the books after the new contract

goes away.

Any final words of advice?

The people component is huge and often

overlooked. Be sure you have the right talent on hand to implement your growth

plans. This includes not only your own

engineers and sales staff but also partners

like your accounting firm. Will they all be

able to go to the next step with you?

Leverage the expertise of your business

advisory team in the planning stages as

well as throughout the execution of your


LORI GEIER is a vice president and market manager in the business banking division of Fifth Third Bank in Cincinnati. Reach her at

Tuesday, 26 August 2008 20:00

Fifth Third Bank balances risk and return

Given the news in the general media,

many firms are pulling back instead of

being aggressive in the marketplace.

With some banks under fire, credit everywhere is tighter. However, every tough spot

in the market for one business might represent a business opportunity for another.

Smart Business asked Tim Kelly, vice

president with Fifth Third Bank in

Cincinnati, for some tips on balancing risk

and return.

Is this a prudent time to be leveraging


For many firms, it may not be a prudent

time to take on additional leverage.

However, if by prudent time you mean that

a viable opportunity exists, then it is always

worth taking the time to consider whether

or not deploying capital is appropriate.

Capital is clearly less plentiful today than

12 months ago and is priced accordingly.

That must be considered as part of the

analysis. However, the underlying strength

of the opportunity could be tested in the

event current economic conditions persist

longer than anticipated and must be considered as well, provided satisfactory due

diligence has been completed.

If the expected return on the project or

opportunity outweighs other opportunities

available — plus the cost of obtaining capital — then it would be considered a prudent investment. Companies that have

developed and maintain strong balance

sheets are generally in a much better position during economic downturns to take

advantage of more opportunities. This is

not only because others are not able to pursue such opportunities, but also due to the

fallout of weaker competitors. This is

when having ‘dry powder’ can really work

to a company’s advantage.

What about the cost of capital these days? Is

it good to borrow when money is more


The cost of capital is impacted by supply

and demand and, therefore, more expensive today than at times in the recent past.

It is important, however, to note that on a

relative basis, the cost of debt or capital is

still considered low. The prime interest

rate is only 5 percent today while the average prime rate over the past 20 years was

7.5 percent, a significant 33 percent discount from the average. Additionally, the

30-day LIBOR rate, a typical index for pricing commercial debt, is at 2.45 percent

today versus a 20-year average of 4.84 percent. That’s nearly a 50 percent discount.

As long as the expected return for

deploying capital exceeds the costs associated with obtaining the capital or debt, it is

worth considering.

Isn’t leveraging assets a change from getting

loans based on cash flow?

Yes, leveraging or borrowing against

assets is different than borrowing against

expected cash flows. As would be expected, borrowing against assets is less risky

because there is typically underlying or

secondary value regardless of the performance of a company. Borrowing based on

future cash flow that may not occur has no

underlying value, hence it is more risky.

When capital is scarce, less risky or asset-based financing becomes more prevalent.

Which assets are more likely candidates for


Most assets are generally available for

borrowing against, and which asset to be

leveraged would depend on the financing

need/reason. If a company is growing/

expanding, then the likely need for capital

is to support the timing differences associated with carrying additional accounts

receivable and inventory. In this case, these

current or short-term assets would be the

assets likely to be leveraged to support the

short-term nature of the borrowing need.

For longer-term capital needs, such as

equipment, expansion, real estate or even

permanent working capital needs, then

longer-term assets would be the likely candidates to leverage.

Aren’t values of assets like real estate and

many vehicles down?

Generally, real estate values have declined over the past year or so. However,

real estate can still be leveraged based on

current values and current underlying cash

flows that support repayment of capital or

debt. The generally accepted loan-to-value

ratio for borrowing against real estate is

80 percent, assuming there is a sufficient

income stream to cover the debt service or

principal and interest of the loan.

How can I be sure I’m not overextending?

Model future expectations and ensure

that with the most conservative projections, repayment requirements or minimum returns are still achieved. While

entrepreneurs are typically considered

experts in their respective fields, it is generally a good idea to work with your financial advisers to help determine the right

amount of leverage given the company’s

current financial strength and the potential

of various opportunities. Obviously, your

banker or CPA would be excellent experts

to call on to help determine the appropriate capital structure for your situation.

TIMOTHY P. KELLY is team leader/vice president in the Middle Market Commercial Banking Group with Fifth Third Bank in Cincinnati.

Reach him at

Saturday, 26 July 2008 20:00

Electronic payments

Competition in the U.S. banking industry is undoubtedly increasing. Banks that can provide product innovation without sacrificing security, efficiency and reliability will remain successful in the payments landscape of the future. Yet there are reasons for businesses that are not directly involved in the financial industry to be on top of the changing landscape in the electronic payments industry.

Smart Business recently spoke to Zahara Alarakhia, attorney at the Dallas law firm of Munck Carter, P.C., for insights into the changes in the card payments industry.

What are the new dynamics of competition for banks in the payments industry?

Service businesses will compete with traditional banks on brand, cost and service standards. Technology vendors are offering solutions for cash management integration and function as intermediaries for capital flows. There is a proliferation of nonbank e-billing services that continue to expand their proposition to consumers. All of these initiatives come from outside the banking system.

While banks face regulatory challenges, many of the new nonbanking players have a greater ability to innovate and take advantage of emerging opportunities. They have no responsibility to ensure that the underlying banking framework is secure in the battle against fraud and anti-money laundering.

For instance, the concept of micro-payments is transforming the way things are done in the payments industry. The forefront leader in revolutionizing this concept is PayPal. As each new generation spends an increasing amount of spending dollars with online retailers, PayPal’s consumer base expands. Now, PayPal is itself crossing boundaries and developing an existence away from retail Web sites. It has launched a service called PayPal Mobile where people can text money to each other. This takes the whole payment experience to a different level.

Prepayment cards are another example of the revolution that is being led by nonbank players. Large numbers of corporations use prepaid cards as a paperless payment solution that cuts costs, reinforces brand awareness and improves efficiency.

What are the market forces that are driving the change in the payments industry and reshaping its future?

Technology is reshaping consumer expectations of access, timing, speed and cost. The Internet is the perfect example. The Internet has revolutionized how we communicate and interact in our daily lives. Also setting the pattern for the future is mobile technology. Today, I can take pictures, play music, surf the Internet, write e-mails and make payments through my smart phone.

Technology has enabled customers to research, compare and form and break relationships with financial institutions while demanding new channels and greater control over their transactions. Customers are redefining banking to mean anytime access to transactions and information. Increasingly intolerant of poor responses from banks, knowledgeable and more demanding customers are no longer blindly loyal but ready to move around frequently, shopping around for the best products/services and reliable advice.

What are the legal and regulatory considerations in managing risks of fraud or abuse in the payments industry?

Security breaches are becoming more common, identity theft is an issue, and privacy and data protection are of concern to all organizations. The theft of 46 million credit card and Social Security numbers from TJX Companies, Inc. by a hacker in December 2006 underlines a number of important issues in security and regulation. And customers are becoming more aware of fraud and identity theft.

Unlike the nonbank payment institutions, banks have faced mounting federal and state legislation in the past few years, especially in the areas of privacy, data protection and telemarketing. Know-your-customer (KYC) continues to be an issue for banks. In October 2001, the Basel Committee on Banking Supervision issued customer due diligence for banks, which was subsequently reinforced by a general guide to account opening and customer identification (CDD) in February 2003. The CDD paper outlined four essential elements necessary for a sound KYC program. These elements are: (i) customer acceptance policy; (ii) customer identification; (iii) ongoing monitoring of higher-risk accounts; and (iv) risk management.

The purpose of the KYC standards is to protect the integrity of the banking system by reducing the likelihood of banks becoming vehicles for money laundering, terrorist financing and other unlawful activities. Educating consumers on the latest threats, encouraging them to monitor their accounts and establishing ways for them to cost-effectively interact with their banks can be very effective in dealing with most types of fraud and can provide a competitive advantage to banks in the payments industry.

ZAHARA ALARAKHIA is a member of the Corporate Transactions and Securities Practice Group of Munck Carter, P.C. where she focuses her practice on technology, electronic commerce and general corporate and securities law matters. She has extensive experience counseling financial services businesses with respect to their electronic banking, merchant-acquiring, electronic fund transfer, credit card, debit card and stored value card businesses. Reach her at (972) 628-3641 or

Wednesday, 25 June 2008 20:00

The benefits of benefits

Workers appreciate a good wage for a good day’s work. A good benefits package is icing on the cake. These days, however, benefits are much more than that. Many companies are offering packages that include solid, affordable benefits, health-related amenities and wellness programs. These “full-service” benefits packages benefit both the employees and their employers.

“Providing benefits to employees should be a top priority for any company,” says Mike Langenfeld, executive vice president of InfoCision Management Corp. “Some companies even have specific departments dedicated to employee benefits. At any rate, a good benefits package is key to finding and maintaining top employees.”

Selecting and maintaining the right employee benefits plan is a daunting task, however. But, if you know what your employees want and need, you can provide services that are right for everyone.

Smart Business spoke with Langenfeld about what makes a good benefits plan and how your company can implement one.

What medical coverage should be offered?

It’s best to offer a full line of medical coverage, both to part-time and full-time employees. Give them two health plans to choose from. One could be a low-premium plan and the other a low-deductible plan. Then, employees are free to choose whichever best meets their individual family’s needs and requirements. You could also offer supplemental insurance policies like AFLAC’s income replacement policies, which are designed specifically to each employee’s needs. You can also offer free life and accidental dismemberment insurance policies as well as free long-term disability insurance.

What health-related amenities can you offer?

Two major amenities that are growing in popularity are on-site physicians and on-site fitness centers. With on-site physicians, you have board-certified physicians from the local area — who still maintain their own private practices — staffing your company’s offices. That way, the physicians who work with employees are not under the normal pressures of trying to break even on costs and have no incentive to cut corners. The result is that the doctor only has to focus on the patient. The company handles all of the business details and supplies. Employees are responsible for paying a small co-pay that is payroll deducted. On-site physicians can usually see employees outside the office setting, as well. They are available on weekends to contact for care questions. Many companies also partner with local pharmacies, so they can call in prescriptions for employees. The company confirms the order and payment, and the prescription is delivered the same day.

What about workers’ children?

Many companies offer child care centers, which provide a nurturing, educational and healthy setting for employees’ children. Programs are designed to meet the individual needs of each child and to help children learn skills, develop interests and enjoy the companionship of other young children and adults. Some curriculum areas include language and creative arts, math and sciences, and gross and fine motor development. Children are taken outdoors to play on the playground and to go on walks. Often, the playground equipment is state-of-the-art.

What wellness programs can be offered?

You could offer annual health screenings or flu shots on-site. Some programs help with quitting smoking, losing weight and managing stress. You can offer employees cash or other incentives for completing these programs. Another popular option is fitness programs, such as yoga or aerobics. Several health management programs provide education and support to employees who are pregnant or diagnosed with a chronic disease. Programs also exist for expectant parents, those suffering from depression, those with asthma, COPD, diabetes, heart failure or coronary artery disease, and those suffering from musculoskeletal and chronic pain.

Isn’t all this expensive?

The key to keeping premium increases low is constantly communicating with employees on how to use their benefits wisely and to pick the right plan for their personal use and for their families. In addition to the traditional employee handbook, it helps to have a dedicated Web site that lists all your benefits and amenities, along with copies of any of the forms that may need to be filled out.

How can extra benefits increase employees’ appreciation of a health package?

Offering additional benefits options allows employees to customize their health package to meet their specific needs. For instance, in a family where everyone wears glasses or contacts, the option to purchase a vision plan could be a large incentive. For many families, access to affordable dental care is also important. Having a plan where employees and their dependents can afford to go to the dentist for preventive maintenance and for special dental care can be very important. Not only do these additional benefits increase employee satisfaction, but they also enhance employee health and wellness.

MIKE LANGENFELD is the executive vice president for call center operations at InfoCision Management Corp. InfoCision is a privately held teleservices company and is a leading provider of inbound and outbound marketing for nonprofit, commercial, religious and political organizations. Reach him at (330) 668-1400.

Atypical loan application process can

seem daunting, confusing and time-consuming. But, if you know how banks make business credit decisions, you

can prepare your company for a seamless

process. The key is to know what your business needs to do to impress bankers.

“Right now, all banks are tightening up their

credit processes,” says Joe Garde, a vice

president in business banking with Fifth

Third Bank. “Given the current economy,

credit quality is a big issue for everyone.

Banks also want to be sure they are on top of

the customers’ credit situation.”

Still, the drop in rates might make this a

good time for businesses to renegotiate rates.

Do it right, you get the loan. Mess it up and

there is a much steeper hill to climb.

Smart Business spoke with Garde about

business credit decisions and how to prepare

for successful borrowing endeavors.

With lower interest rates, are banks more

aggressive or are they pulling back?

Regardless of the interest rate environment, banks will always want to do business

with creditworthy companies. But, it

depends on what a company is doing — how

its business is performing, the quality of its

balance sheet, and the profit and loss statements. Nowadays, with lower interest rates,

you will see many companies trying to refinance to a lower rate. Banks do in-depth

reviews and due diligence on the company,

assessing how creditworthy it is. If your business is doing well, banks will probably refinance. The market today is very competitive.

So, it might be prudent to shop other banks.

The bottom line is that if your company is

doing well, there is a good probability that

you will get your rate adjusted.

There seems to be more paperwork involved

than ever. True?

There is more paperwork since there is an

increased emphasis on due diligence at

banks. Banks ask more questions these days

on how the company is performing. They

want detail on year-over-year results and the

business environment. Banks want to understand the components of your business and

how they are changing. On the approval side, banks are being more detail-oriented to

ensure they understand how the company

and its management are performing. So, it’s

probably correct that there are a few more

documents to submit and sign. Some protect

the business, too — those that spell out loan

terms, interest rates and other conditions.

Is a written business plan required?

If you are a start-up, a detailed plan is

required. It should set your mission statement and objectives and include a narrative

of assumptions. For an established business,

it is still good to have a business plan for the

year ahead — something that includes the

balance sheet — P&L statements, cash flow,

etc. But a good narrative is a plus.

What ratios and other factors are important?

Banks like to see details on sales, cost of

goods sold, operating expenses broken

down by salaries, advertising, utilities, etc.

Banks like to compare the past years to projections. Projecting 30 or 40 percent increases in sales usually is not reasonable. But you

might anticipate growth due to adding a

new customer or new territory. Spell it out

so the bank gets a better vision of how you see the coming year. Remember, it’s not

always the numbers that banks need but

also the ‘why’ behind the projections.

Relative to ratios, banks look at balance

sheet ratios such as current ratio and leverage. Other important ratios are debt service

coverage and fixed charge coverage.

At what other things do banks look?

Banks typically run a credit report on the

owners. Banks like to see owners’ credit

scores. Typically, the way they conduct their

personal businesses is the way they run their

companies’ businesses. Banks do lien searches, looking for lawsuits against the company

or lien on assets to make sure the company is

current on all of its taxes. Banks want to be

sure there are no surprises.

Should I work with a downtown banker or my

local branch?

If you are looking for a smaller loan, something under $150,000, a branch manager will

probably better serve you. When you’re talking upward of a quarter-million or half-million

dollars, getting a business-banking professional involved is better. They have more

expertise and will consult with you on the

overall financial needs of your business.

Who sets the interest rates and terms on

loans? Are they negotiable?

Banks set rates based on the credit quality

of the customers and their banking relationships. Everything is negotiable, especially if

banks are competing against one another.

Once banks get all the financial statements

for the company and the guarantors, it generally takes 10 to 15 business days to get a

loan, which includes underwriting, approval

and documents. In situations that might

require a real-estate appraisal and an EPA

Phase I, the process will probably take

longer. As long as banks have all the information in hand, the process is smoother and


JOE GARDE is a vice president, business banking, with Fifth Third Bank. Reach him at (513) 861-4983 or

Friday, 25 April 2008 20:00

Fifth Third Bank leasing vs buying

Anew provision in the tax laws might

change the way your company

looks at leasing versus purchasing.

The recently enacted provisions under

the Economic Stimulus Act of 2008 are

very similar to what was passed under

The Jobs and Growth Tax Relief Reconciliation Act of 2003.

The comprehensive package contains

some pro-growth elements, specifically

allowing businesses to accelerate depreciation deductions on their investment in

qualified property. Among other incentives, the provision allows for an additional first-year depreciation deduction

equal to 50 percent of the adjusted basis.

Smart Business spoke with Chris Bell

and Mark Zink, vice presidents in the

Equipment Financing and Leasing Group

at Fifth Third Bank, about what to expect

under the new law and how to determine

whether to lease or purchase.

How common is equipment lease financing

in today’s market?

Equipment leasing is a major means

that companies and municipalities of all

types and sizes employ to acquire equipment. The current economic landscape

has CFOs looking for creative ways to

fund equipment acquisitions and manage

capital budgets. A renewed focus is being

squarely placed on working capital and

increased liquidity. This sensitivity to capital value tends to enhance leasing as an

alternative to traditional debt financing.

Companies lease for many reasons, but

seldom exclusively, to avoid the capitalization of new equipment. The most common reasons for leasing are to match

cash flow to productive use of assets, to

avoid technological obsolescence (return

and upgrade), for 100 percent loan to

value financing, for efficient use of tax

incentives for acquiring new equipment,

to improve cash flow benefits and to

expand available credit.

How does a company’s tax status affect the

decision to lease or buy?

A company should look at its current

and future tax situation to determine the optimal structure. Taxpayers should optimize their current tax benefits and forecast against their minimum tax positions

in the future. Some companies may find

that they may not be able to immediately

utilize some or all of the tax benefits

resulting from purchasing equipment. A

tax lease will effectively transfer those

tax benefits to the lessor in exchange for

lower rental payments.

How do my long-term intentions with the

assets impact the decision to lease or buy?

It is important to consider your plans

for the acquired equipment up front.

Obviously, things may change over time,

but you should consider some of the following in advance: How long will I need

the equipment? Is technological obsolescence of the equipment a threat? Could

inflation threaten the future market

value of the equipment? What is the value

of cash savings from leasing to the company? Perform a lease-versus-buy analysis, which compares the after-tax cost of

ownership. The lessor can assist with

this analysis.

Are there certain organizations that qualify

for tax-exempt leases?

Each state has its own statutory guidelines for tax-exempt lease qualification.

Generally, political subdivisions, such as

counties, cities, villages, townships,

school districts and fire districts, fall

into this category. In contrast to other

traditional forms of tax-exempt financing (i.e. bonds and notes), leasing is subject to the lessee’s annual appropriation

and is thereby not typically considered a

general debt obligation.

In addition, some other not-for-profit

organizations, such as hospitals and private schools, can utilize tax-exempt leasing through the support of a local municipality. These entities typically utilize

this form of financing mainly for an

effective low-cost, tax-exempt solution

to finance assets over their economic

useful life.

Are there any intangible benefits to leasing?

Working with a leasing facility can be a

very positive experience for a company.

From an efficiency perspective, equipment lease lines of credit are often put in

place early in a company’s fiscal year to

manage capital expenditures. The facility may be structured so that deposits to

the equipment vendors may be funded

under the line on an interim basis and

then upon delivery, termed out into the

appropriate lease schedule. The fixed

rate form of lease financing provides an

ability to plan for future business needs

and is a predictable means of matching

revenue and expenses.

Are there asset classes that do not work

well in lease financing?

Virtually all types of equipment can be

leased with the main exception of limited- or special-use property. Under IRS

guidelines, property must be of use to

someone other than the lessee or a related party.

CHRIS BELL and MARK ZINK are vice presidents in the Equipment Financing and Leasing Group at Fifth Third Bank. Reach them at and, respectively.

Sunday, 24 February 2008 19:00

Avoiding fraud

When it comes to handling a company’s cash, the umbrella term used in the banking industry is “treasury management.” Simply put, treasury management is the management of all cash-related functions in a company. Terri Crane, assistant vice president at Fifth Third Bank in Cincinnati, says that this includes cash management, risk management, dividend disbursements and insurance.

Cash management is an area which any firm must carefully monitor to be sure they get the most from their banking relationship and to avoid the possibility of fraud.

Smart Business spoke with Crane about ways to maximize an organization’s protection against fraud.

Describe some common fraud vulnerabilities facing companies.

There are two common types of fraud: check fraud and electronic fraud via ACH (Automated Clearing House). Companies are susceptible to check fraud every time they send a check. The account number is printed in the MICR (magnetic ink character recognition) line of a check. Check fraud has become very simple. Buying check stock at any office supply store, printing the company logo and reproducing a MICR line can be easily done on any home computer.

Another form of fraud that companies face today is ACH fraud. The waive of electronic bill pay and electronic debit has made it easy for a criminal to provide a stolen account number to a company for payment.

Once exposed to fraud, how should the company proceed?

Once exposed to check fraud a company must notify the bank within 24 hours. The bank has only a small window of time (24 hours) to attempt a return on a potentially fraudulent item. After the window is closed, it is considered a late return and a loss may occur. ACH fraud has variable time rules depending on the type of ACH that hits the company’s account. The company must notify the bank, in some cases within 24 hours, of the debit posting. In both cases, the potential loss can be avoided by utilizing bank fraud prevention services.

How can a company minimize fraud?

Internally, a company should ensure protective measures are in place. These would include practices like dual signing of checks, separation of duties, daily review of checking accounts activity, keeping check stock locked and use of checks with built-in security features.

What is the bank’s role in assisting with treasury-related functions?

Our goal at Fifth Third is to provide products and services that help companies manage their cash as effectively as possible and aid them in achieving their overall strategic objectives.

What are the best ways banks can help protect organizations?

Positive Pay is the best way to protect a company against check fraud. Companies can perform the audit review on their end by reviewing all checks clearing daily or provide a disbursement file to the bank and let the bank do the necessary review. Either method can be very effective against check fraud.

To protect a company against ACH fraud, banks can place an all-debit block on accounts that should have no ACH activity. For accounts that require taxes, payroll or other preauthorized debits coming out, an ACH filter can be placed on the account. By using a company ID, the filter works like a gate; the company tells the bank what IDs are allowed in and what IDs are not.

TERRI CRANE is assistant vice president at Fifth Third Bank in Cincinnati, specializing in treasury management. Reach her at

Sunday, 24 February 2008 19:00

Customer retention

An old adage states that it is much more expensive to acquire a new customer than to retain an existing one. The question then becomes: How much more expensive?

Studies indicate that it is somewhere between six and 10 times more expensive to acquire a new customer, says Chris Wagner, vice president of marketing at InfoCision Management Corp. Smart Business asked Wagner why companies spend so much on the arduous task of acquiring new customers while taking such a rudimentary, reactive approach to retention.

What is your approach to retention?

Our focus is on ‘total life cycle management,’ thus we have the opportunity to work with many customers on both retention and acquisition strategies. To make the case for a powerful, proactive retention campaign, let’s look at an ongoing retention program with a large wireless provider. Annual churn for this company was 7.08 percent and the cost to acquire a customer was $305. The average annual revenue per customer was around $630 and the net income per customer was about $90. With these costly new customer acquisition activities only able to keep pace with the rate of attrition, the overall marketing costs were on the rise.

What did you do?

The first step in developing a retention program was to analyze the database to find statistically valid indicators of a customer’s likelihood to leave. Some key indicators were:


  • At contract expiration



  • Three months after contract expiration



  • Six months after contract expiration



  • Nine months after contract expiration



  • Customer just received a bill



  • Customer received a bill within the last 90 days that was 20 percent above average



  • Customer complained to call center about service and/or cost



  • Age of customer hardware (phone, wireless access device)


Based on this scoring model, 5 percent of the active customer base could be earmarked as likely to leave. With 10 million active customers, this client had around a half-million customers that were likely to churn at any given point. The second step was to identify, within that half-million, which customers were worth retaining, allowing us to concentrate on customers who provided a good margin of profitability.

How did it work out?

We were able to identify 360,000 customers per quarter that we wanted to actively retain. We were able to retain these customers at a rate of about 32 percent at a cost of $28 per customer. This strategy cut overall churn in half, and the net income-to-program cost was 10-to-1. Over the course of a year, an additional 473,250 customers were retained at $28 a person, for a total cost of $13,251,000. To acquire this many customers at $305 acquisition cost would have cost $144,341,250, resulting in a cost savings of $131,090,250. By focusing on customers who had greater margins and offering plan and equipment upgrades, the average revenue per retained customer grew by $11 a month, adding an additional $5 million in revenue. The addition of a telemarketing component to the overall retention strategy proved to be an integral part of the overall retention effort and is much more cost effective than making up for those sales lost to attrition by increasing new customer acquisition activities. The superior results earned InfoCision the majority of this business as this wireless provider’s cost per customer decreased substantially.

CHRIS WAGNER is vice president of marketing at InfoCision Management Corp. Reach him at (330) 668-1400. In business for 25 years, InfoCision Management Corporation is the second largest privately held teleservices company and a leading provider of customer care services, commercial sales and marketing for a variety of Fortune 100 companies and smaller businesses. InfoCision is also a leader of inbound and outbound marketing for nonprofit, religious and political organizations. InfoCision operates 32 call centers at 13 locations throughout Ohio, Pennsylvania and West Virginia. For more information, visit