To a business owner looking for market penetration, establishing a franchise provides a number of benefits.
“We’ve taken clients operating from a few local locations to expanding into many states through franchising because they had aggressive expansion plans and were a great candidate to franchise,” says Kacie Davis, an associate with Kegler, Brown, Hill + Ritter.
However, launching a franchise system isn’t an easy get-rich-quick scheme.
“It’s really a cost/benefit analysis for a business as to whether they’re ready to expand and can support an on-going franchise system,” says Davis.
Smart Business spoke with Davis about the process of franchising a business.
What is a franchise?
Essentially it’s a business arrangement where one party grants rights to offer goods or services under its company or brand name. The seller provides significant control or assistance over the business, and the purchaser makes a minimum payment to enter into the arrangement.
What are the benefits of franchising?
Franchising allows you to build brand recognition and increase market share with a limited risk of financial exposure. Franchisors can shift the burden of operations and obtaining necessary capital to open new locations onto individual franchisees. Additionally, the franchise model provides new revenue streams to the franchisor by way of franchise fees and royalties. Franchisees also benefit because they start with a proven business model and leverage a successful brand name to tap into an immediate customer base.
How do you determine if a business is suitable for a franchise?
While it’s somewhat intangible, there are certain hallmarks of successful franchises.
- The franchised business has one or more established and profitable locations.
- The business can be replicated into a turnkey operation.
- The concept is transferable to other markets or locations.
- The business has been lucrative and is attractive in terms of ROI.
Any type or size of business can be franchised, but a key component is its capability of supporting long-term franchisee relationships — a franchise system will only be successful if its franchisees are successful.
How is a franchise established?
In order to sell franchises, you must comply with Federal Trade Commission (FTC) regulations, which involves the preparation of a Franchise Disclosure Document (FDD). The FDD provides the franchisee with information on the business, the services the franchisor will provide and other information about the franchisor, including financial statements. Several states require registration of the FDD before franchises may be sold within that state. This means working with the state’s attorney general or securities division.
In addition to the FDD, you’ll need a franchise agreement and other contracts that detail the franchisee’s compliance requirements, such as how they use your brand name and trademarks, and how you can enforce your rights.
In order to support your franchisees, you also need a very specific operations manual for the business and a training method to teach new franchisees how to operate the business and implement the operations manual. This will ensure uniformity and protect the franchised brand, ensuring consistency and increasing brand value.
What are some common problem areas?
One problem a business owner can run into when expanding is starting to sell a franchise without realizing it. People enter into licensing agreements thinking they are not selling franchises and can avoid FTC regulations and requirements. However, what can trip an owner up, and turn the license arrangement into a franchise arrangement, is providing the right to use your brand name in connection with providing assistance or control over that licensee’s business operations.
Another risk is putting capital into franchising a business that wasn’t market-tested. Without this, you don’t know that anyone would buy into the concept and replicate the success you’ve had. ●
Kacie Davis is an associate at Kegler Brown Hill + Ritter. Reach her at (614) 462-5402 or firstname.lastname@example.org.
Insights Legal Affairs is brought to you by Kegler Brown Hill + Ritter
Top earners may be surprised at all the additional taxes they’re paying when they file in April.
Christopher Axene, CPA, a principal in Tax Services at Rea & Associates, says many people could have exactly the same income as they had the previous year, but experience a 6 percent increase in their tax rate nonetheless.
“If they’re not doing tax planning or getting some idea where they stand, it might be a shock for some people,” he says.
Smart Business spoke to Axene about tax changes for 2013 that could sneak up on filers who haven’t accounted for the additional liability.
What are the key tax changes top earners can expect for 2013?
The increase in tax rates is the most significant change, going to a new top rate of 39.6 percent compared to the 35 percent rate in the past for couples with an annual income of more than $450,000.
There’s also a 3.8 percent surtax on net investment income. That applies to individuals with $200,000 or more in adjusted gross income (AGI) and couples with $250,000 or more.
Rates are increasing for capital gains and dividends, going from 15 to 20 percent. The AGI threshold for the 20 percent rate is $400,000 for individuals and $450,000 for couples.
Couples with W-2 income over $250,000 will also see an additional 0.9 percent Medicare tax this year.
Because of all of these changes, it’s important to start doing tax planning now.
Are there things that can be done to lessen the tax burden?
It’s not so much about getting away from these taxes; it’s a matter of being aware of their impact. It doesn’t make sense to take a pay cut just to pay less tax.
Most people will be withholding enough for the 39.6 percent tax rate, so that’s not likely to cause surprises. But the 3.8 percent surtax on investment income isn’t being withheld, and there’s no withholding tax associated with dividends. People might be making estimated payments, but payments based on prior year tax rates won’t be sufficient come April.
While there aren’t any major loopholes or tax havens, making the maximum contributions to a retirement plan continues to be a powerful tax deferral tool both for employees as well as the self-employed. Another thing to consider is the IRA distribution available to people who are over 70½ years old. As long as they are charitably inclined, they can take a distribution up to $100,000 from their IRAs and give that directly to a qualified charity. Those dollars won’t be included as taxable income, but they don’t get a tax deduction for the contribution either. For those who don’t need the money, it can be a useful tool to satisfy the yearly minimum distribution requirement and fulfill charitable goals.
Other than that, you could save on taxes by manipulating when income is earned or when deductions are paid. If you own a business and have control over your income, it might make sense to spread income over multiple years or bunch deductions into one year in order to maximize lower tax rates.
Should people who expect to owe more make additional tax payments now?
Run projections, get estimates and figure out what will be your tax liability. If you need to make up a difference, perhaps withhold more out of a bonus check in December or make an estimated payment in January to lessen the hit in April.
It’s more important this year than any recent year to run projections, particularly for high-income earners. About 90 percent of taxpayers probably don’t need to worry about this, but that top 10 percent could see tax rates going up 6 to 8 percent because of the new add-ons and new top tax rate. Income tax surprises usually aren’t a good thing. Start planning now for what will be coming in April 2014. ●
Christopher Axene, CPA, is a Principal in Tax Services at Rea & Associates Reach him at (614) 889-8725 or email@example.com.
Insights Accounting is brought to you by Rea & Associates
No one wants workplace injuries. But accidents can happen, particularly when projects need to be finished right away.
“That’s usually where the breakdown occurs. If you have to rush a project through and you’re potentially cutting corners for the sake of efficiency, that’s generally when injuries happen,” says Derek M. Hoch, president of Leverity Insurance Group.
Smart Business spoke with Hoch about complying with Occupational Safety and Health Administration (OSHA) standards, which can result in a safer overall workplace.
Do most manufacturers have workplace safety programs?
Larger corporations usually do. Some smaller operations may not have any program in place, as they have had the same employees for a long time and, while they know the equipment and systems very well, they don’t necessarily follow established procedures.
Employees may take shortcuts because they’re comfortable with equipment they’re using. They can lose sight of the fact that doing something in a hurry and not in the proper manner can result in a workplace injury.
How is a workplace safety program developed?
The best way is to sit down with your risk manager — your insurance broker — to develop a program because it’s really about managing and controlling risk. You should work with an expert who can guide you through proper policies and procedures that should be in place.
This plan should be followed by a legal review to ensure that everything complies with OSHA regulations.
A good safety program includes appointing a company inspector who will routinely evaluate the workplace and conduct self-audits to make sure employees are following standards and adhering to policies.
The company inspector asks the same questions and uses the same checklist that an OSHA compliance officer would. These items include required employer postings, record keeping, medical services and first aid, fire protection, personal protective equipment, lockout/tagout, company evacuation plan, tools and equipment, environmental controls, electrical safety and accident investigation.
How often do programs need to be updated?
Programs need to be updated accordingly to comply with workplace and regulation changes. But, more importantly, you need to educate employees by providing refresher courses and holding quarterly or semi-annual safety meetings. The staff should have knowledge of OSHA standards and what the regulations are within their specific industry.
Revisit the program and make it real, because there is a tendency to get complacent in a job you’ve been doing for a long time. Spot checks help to ensure that everyone is complying with company procedures.
What are particular areas of risk?
OSHA’s most frequent citations are for violations of standards covering fall protection, hazard communication and respiratory protection.
Problems are particular to industries. For example, a manufacturing facility presents potential respiratory hazards if employees aren’t wearing the proper protective masks, or losing limbs if they are not wearing protective guards or guards aren’t properly installed on the equipment.
Powered industrial trucks, like forklifts, also can pose potential risks if proper training is not established. Another issue involves lockout/tagout procedures — having machines shut off and started up properly when there is maintenance or servicing work.
If violations exist, what are the potential costs and penalties?
Penalties can be significant, but not valuing a workplace safety program will lead to larger issues beyond OSHA citations, like employee injuries, fires and mechanical failures. Unfortunately, many companies wait until there is an accident before focusing on implementing, correcting or amending a safety plan. ●
Insights Business Insurance is brought to you by Leverity Insurance Group
At this point last year, Congress was debating a “fiscal cliff” deal that included the elimination of Bush-era tax cuts and several tax provisions favorable to businesses. Many of those provisions, extended for 2013, are now due to expire unless further action is taken.
“Based on what has occurred in Congress recently, I can’t say I’m optimistic that a lot will be accomplished,” says Terry Silver, CPA, J.D., a partner at Skoda Minotti.
Smart Business spoke with Silver about expiring tax provisions that affect owners of small and midsize businesses.
What key tax provisions are set to expire?
From a business standpoint, most are related to depreciation. Other changes impact individuals, but for businesses the important one is the Section 179 deduction for tangible personal property. For 2013, you can expense up to $500,000 for property placed into service during the year. That starts to phase out if you have property additions of more than $2 million, and basically doesn’t apply once you reach $2.5 million. At that point, you must capitalize purchases of property and equipment and depreciate them over a period of years. That taxpayer-friendly treatment is substantially reduced in 2014 to $25,000, with the phase-out limit falling to $200,000.
Taxpayers can claim Section 179 write-offs for qualified real property as part of that $500,000. You can write off up to $250,000 in qualified leasehold improvements.
Another favorable provision in 2013 is bonus depreciation, which doesn’t contain the taxable income limitations and phase-out provisions attached to Section 179. This 50 percent bonus depreciation allows half of the cost to be expensed without limitations. The only restriction is that it has to be original use with the taxpayer; it doesn’t cover used equipment. Bonus depreciation also is going away in 2014, except for certain aircraft and long production period property.
One other tax provision extended through 2013 is the research tax credit. If your business spends money on research and development (R&D), there’s a tax credit for increasing expenditures related to that activity.
Any chance these might be extended?
Section 179 and bonus depreciation have been extended a number of times in recent years. Given the concerns about the economy, there’s some likelihood that something will be accomplished. While it doesn’t seem likely to happen by the end of the year, it is possible an extension could be put in place in 2014, retroactive to 2013. The most apt to return is the R&D credit, which has been extended numerous times.
Is it too late to take advantage of these expiring provisions?
With some of these, a business may be looking at equipment purchases planned for 2014 and accelerate a purchase to the end of 2013. It is important to note that the property must not only be purchased, but placed in service before the end of the year.
There also are other strategies business owners can follow to reduce their tax burden. Many small business owners, for whatever reason, don’t have a retirement plan. If you put in a profit-sharing plan with a 401(k) feature, careful planning can allow a significant amount of the employer contribution to be skewed toward the owner.
Depending on the nature of your business, you might consider paying out bonuses. But be careful to remember the new additional 0.9 percent Medicare tax related to earned income over $250,000 for couples filing jointly, $200,000 for single taxpayers.
If you’re the owner of an S corporation with a $250,000 salary and have substantial profit for the year, you may want to consider taking distributions in lieu of additional salary. Although the shareholder will still pay income tax on the profits, the 1.45 percent Medicare tax paid as an employee, the 1.45 percent paid by the company and additional 0.9 percent Medicare tax can be avoided. However, the IRS may look at distributions relative to the salary you’re taking — the salary has to be reasonable for the services you provided.
Overall, as 2013 winds down and we head into 2014, owners and executives in the highest tax brackets will face higher tax rates on taxable income, qualified dividends and a 3.8 percent tax on net investment income. Whether Congress passes legislation to provide tax relief and spur the economy will no doubt be a topic of much debate. ●
Insights Accounting & Consulting is brought to you by Skoda Minotti
It’s difficult to know for certain what your clients want if you never ask them.
“Businesses should be asking their customers: What are we doing right? What are we doing wrong? What could we do better? If they’re not asking these questions, apparently they do not care about their customers,” says Rick Voigt, president of Today’s Business Products.
Smart Business spoke with Voigt about ways to gather customer feedback and how to use the results.
How do you find out about customer needs and wants?
You want to conduct surveys, usually at the end of the year. In order to encourage responses, offer an incentive like an entry into a drawing for an Apple iPad. We did that and had about a 20 percent return rate.
With surveys, you want people to be absolutely open and frank. You can’t improve and address problems if no one tells you about them. Another reason to do surveys is that 99 percent come back with praise for the great job being done. When customers put that on paper, it’s really ingrained in their minds. Then if a competitor comes in their door, they’ve just finished saying how great you are. Why would they want to talk to someone else?
What types of questions should be included in a survey?
It’s important to keep surveys short and to the point. When you’ve answered 20 questions and see the survey is only 7 percent complete, you’re not going to finish it.
Two questions we ask are to name their sales representative and driver. That reveals how effectively the sales consultant is at developing a relationship. If they don’t know the salesperson’s name, they don’t have a great relationship. The same goes for the driver — if they know the driver’s name, they have a relationship. Every point of contact with a customer should form a relationship to help establish your business with the client.
We also structure questions to get more information about the customer, such as how many employees work at that location or if they use other suppliers for furniture or office products. This information indicates the customer’s needs and if there’s an opportunity to generate more business with them. Surveys also can be used to determine ways to expand your business into a different product category. If it’s something else the customer uses, they’ll want to purchase it from someone they know and trust.
Our survey asks respondents to rate customer service regarding accuracy of orders, pricing, ease of placing orders and overall satisfaction, as well as what changes can be made to better serve their needs.
One issue that was brought up was the speed of our website. After seeing the responses, it was imperative to upgrade speed of ordering to better suit customers’ needs. We listened and that issue was resolved.
What else can be done to generate customer feedback?
For larger accounts, you can conduct business reviews that show them your performance. It’s like a report card — how is the fill rate, average order size, product categories purchased, method of purchases, etc.
Customers like the reviews because all the cards are out on the table. There’s a list of the top items ordered, and they can see opportunities to save money by going with substitutes. Changing brands can save a customer about 15 percent on average. Or maybe they can save by ordering a larger quantity at one time.
That helps when a competitor comes into the office and says they can save the business money; the client already knows they could save 15 percent if they changed brands. You have to tell customers this information because if you don’t, someone else will.
It’s important to show clients you’re working on their behalf, as a business partner rather than a vendor. You can replace vendors at any time, but you can’t replace a trusted business partner very easily. ●
Insights Customer Service is brought to you by Today’s Business Products
States looking to add revenue to tight budgets are upping efforts to collect sales and use taxes from businesses that may not know they owe money.
“Sales tax is one of the largest revenue producers for many states, second only to personal income tax. Since there are so many transactions involving the exchange of property and services, the states are getting more creative in their attempts to collect the tax due on these transactions,” says Susan Nunez, J.D., LL.M., a principal in Tax Services at Brown Smith Wallace.
Smart Business spoke with Nunez about who owes the taxes and what to do to ensure you’re complying with state laws.
How are sales and use taxes different?
Sales tax is a transaction tax imposed on sales of tangible property and certain services. Use tax is a compensating tax to sales tax. If a transaction isn’t subject to sales tax, it will be subject to use tax.
Typically the sales or use tax is due when the final consumer purchases and uses the asset. A company that buys components or machinery and equipment to manufacture a product may be able to purchase them exempt from tax, but ultimately someone will pay the tax when the product is made, sold and consumed.
How are states trying to collect these taxes?
One way is by sending out nexus questionnaires to out-of-state sellers. These notices are used to determine whether an out-of-state company has a filing responsibility. For example, if a manufacturing company from another state is selling product to customers in Missouri, the state may send that manufacturer a letter to determine whether it has sufficient presence in the state to require a tax filing. The state can also obtain federal records of imported products to determine if they were shipped into a state and, regardless of whether the company paid tax on that asset, send a notice that says tax is owed.
These are fishing expeditions; you may not owe tax. But it can be threatening to get a letter saying you owe $100,000.
Is not remitting taxes owed common?
Usually we see it in reverse — clients overpay taxes because of the complexity of the tax laws. Taxpayers err on the side of being conservative and pay tax on items that may very well be exempt.
It is difficult to determine what state has the right to the tax and who is responsible for remitting it. For example, drop shipments are particularly problematic. Say a Missouri company has a customer and a supplier in Illinois. An order is shipped directly from that supplier’s Illinois facility. It’s taxable in Illinois, but the question is, who is liable for that tax? It varies on whether the Missouri company is registered in the destination state, whether the supplier has a valid resale certificate from its customer and other factors.
Should companies determine if they owe tax or wait until they receive notification?
It’s best to calculate your liability and make a decision. If a business has a nexus in a state and its tax liability is $30, the amount is most likely immaterial to the company. But if the company is making $10 million in sales in a state, it should want to take action and ensure it’s in compliance.
Many states are conducting amnesty programs to bring in more money. Amnesty periods are attractive to taxpayers not only because they often abate penalties, but they also limit the number of years the state can assess tax.
The most important steps for businesses to take is to get a handle on how tax decisions are made, and to develop efficient processes to manage and streamline their sales and use tax compliance burden. People making tax decisions aren’t usually in operations and don’t understand how purchases will be used, so they can’t apply the laws to see if those items will fall within an exemption.
You can increase tax compliance, and ensure you’re not overpaying, by developing a customized sales tax decision tool. This enables the person who procures items or prepares the invoices to determine what is taxable and what may be exempt. It also provides your company the control needed to make good tax decisions. ●
Insights Accounting is brought to you by Brown Smith Wallace
“Planning for an exit can be a very emotional event in a business owner’s life. There are feelings of mortality — not only with one’s health, but also his or her role as the leader of a business. Businesses that achieve long-term success typically do a good job planning for succession,” says Steven E. Staugaitis, a director in Audit & Accounting at Kreischer Miller.
“It makes sense that companies that effectively plan leadership transitions will do better because they can sustain positive momentum when a leader is properly groomed and allowed to rise within the organization,” he says.
However, many business owners and executives don’t properly plan for an orderly exit. Less than 20 percent of organizations are well prepared for the departure of a key individual, according to the American Management Association.
“We see that particularly with first-generation business owners. One day they realize they’re 65 and ready to retire. They expect to be able to turn a key and exit the business. In those cases, it is rarely a successful exit,” Staugaitis says.
Smart Business spoke with Staugaitis about planning for succession and what business owners should be considering to increase their chances for success.
What steps should owners consider?
The succession process involves evaluating several steps. These steps include, but are not exclusive to:
- Identifying potential candidates.
- Training those qualified candidates.
- Publicly affirming the decision.
These action items are necessary to set the right tone and expectations for the organization and those around them.
When should owners start thinking about exit planning?
Successful transitions occur where sufficient planning takes place — five to 10 years from a planned exit is best. This time frame allows for potential ‘false starts’ as circumstances change. These changes can be a shift in the operations of the business, the unplanned departure of candidates or candidates simply not demonstrating the necessary qualifications to take over. It is important to start the process early in order to keep your options open.
Who should be involved in the selection process?
Certainly the current owner or owners should be involved as well as any identifiable candidates. These candidates need to confirm their intention of really wanting to take over.
Also, having an outside, independent entity such as a board of directors or advisory board can be helpful. The board can help balance decisions by removing the emotion, since they don’t work as intimately with the candidates on a daily basis. Board members are able to provide outside perspective and new, innovative ways for evaluating candidates.
What about contingency plans?
It’s always a good idea to have what is sometimes referred to as a ‘disaster plan’ in place. These plans are a set of key instructions for a spouse or the management team of a business to act upon in the event something happens to the owner. Unfortunately, there are situations where a key owner of a business passes away suddenly. If there is no clear direction left to anyone either in the family or in the company, the company may go out of business as a result.
Are there any other things an owner should be thinking about?
A leader who is planning to leave the organization should think about what he or she is going to do once he or she actually leaves. The most successful transitions occur when the owners take up an active hobby or they participate on advisory boards of other companies. Showing up at the business every day can undermine the whole process and give the perception that a succession has never really occurred.
The succession process needs to be mapped out like you would any other aspect of the business. Even if you’re not planning on exiting the business in the near future, being prepared ahead of an actual event sends a positive message to employees and customers that you’ve built a strong company that is focused on long-term success. ●
Insights Accounting & Consulting is brought to you by Kreischer Miller
The Check 21 Act, passed in 2003, had a dramatic impact on businesses’ cash flow by allowing banks to send digital versions of checks — eliminating the need for physical copies. Similarly, important developments are on the horizon to further enhance payment capabilities, says Tom Hoffman, senior vice president and manager of the Treasury Management Services Division at Bridge Bank.
“We’re seeing a lot of start-up technology companies focused on creating better ways to process payments, and adapters to allow accounting systems to interact with bank services,” Hoffman says.
Smart Business spoke to Hoffman about methods to help manage cash flow and services that may be available in the future.
How can a business tell what treasury management services might be needed?
A good banking partner should conduct initial assessments when clients start working with the bank, and also meet with clients on a regular basis to review needs.
For example, a growing business wanted to see if any changes could impact its treasury management needs. It had acquired a health insurance business in Southern California that processes COBRA payments, and payments were being mailed to central accounting at the company’s headquarters in Northern California. That’s a slow process. The business was able to set up a remote deposit capture (RDC) scanner to process checks electronically. There also are fields in the RDC platform for record keeping — for a payment of $100, the insurance company is paid $95 and $5 is kept for processing. Deposits are now made immediately, which speeds up cash flow and improves the flow of transaction data to the accounting system.
It’s a good idea to meet with your bank’s treasury management adviser at least annually to review your account. Look over the fees you’re paying, determine whether the services are worth the cost and see if there are other services you could be using.
Do businesses often pay for services that aren’t utilized?
It happens all of the time. There might be a base charge for Automated Clearing House (ACH) service and no activity. Maybe the business thought it was necessary, not realizing that if you’re not the party originating the ACH transaction, you don’t need the service. That can be confusing to many people. One of the benefits of treasury management consultation is that your bank should catch these oversights and alert you to save your business money.
How can business owners benefit from new solutions on the horizon?
Many start-up technology companies are working on adapters to create better ways to use existing payment rails such as the check clearing system, ACH, ATMs, and debit and credit cards. If you’re overseas, you can use your ATM card at a bank in London; so, why can’t you send a payment to an international vendor through this network and have an immediate settlement?
Technically, it can be done, but there are a lot of issues — international transfers are done through the Office of Foreign Assets Control. However with such efficiency, those things will be addressed. It can take two to four days to send a wire transfer internationally. It would be attractive to deliver a system to settle that immediately.
In terms of treasury management, the next step is to integrate enterprise resource planning systems with banking services. That’s already happening at Fortune 500 companies. The future is finding technology to create adapters that will connect the company’s banking services with its accounting platform. Businesses will be able to evaluate cash needs and reconcile the accounting system on a daily basis, rather than waiting for paper statements. It’s just a matter of creating an interface with whatever accounting software is being used.
One start-up company has a platform to upload accounts payable — all of the invoices a business receives — so payments can be reviewed and approved via tablet. CFOs want the ability to see every invoice and approve payment, even when traveling.
We’re going to see a lot of innovation. It might not be as dynamic as a new payment system, just modifying the ways existing systems are used to make cash flow more streamlined and free up working capital. Check 21 was a good example of that, and the efficiency, economic and environmental gains were tremendous. ●
Insights Banking & Finance is brought to you by Bridge Bank
Some companies can’t afford or simply don’t perceive the need for in-house legal counsel. However, many are seeing the benefits of using outside legal help regularly, rather than when a problem is at hand, says Enrique Marinez, a partner at Ropers Majeski Kohn & Bentley PC.
“Smaller and midsize businesses need to be proactive and preventative in addressing issues that could lead to litigation problems. The role of general counsel should be one of collaboration and proactive planning to address some of those eventualities before they become problems,” Marinez says.
Smart Business spoke with Marinez about how to best utilize outside counsel to provide a level of service that replicates having in-house expertise.
Why has the role of outside counsel changed?
There’s been a proliferation of the use of electronic media and technology, which brings additional challenges that not all companies have kept up with. One problem that’s prevalent now concerns the handling of electronic media — how to store backup tapes and how often backups should be run. Companies need to have polices and procedures in place to put holds on emails and electronic information when a claim or other circumstance arises.
Another problem area is dealing with employee complaints. You need to have policies to address complaints about the workplace environment — someone claims they’ve been sexually harassed or discriminated against because of age or race. There should be a procedure for how to investigate claims.
Other employment issues can range from someone not being paid proper overtime, providing for proper meal and rest breaks or items like smartphones. If you send employees work-related texts, should you be paying for the phone?
If you have policies and procedures to guide you through these issues, you can follow those when a problem arises rather than responding in the heat of the moment.
Can’t these policy needs be determined by meeting with counsel on a regular basis?
Exactly. Risk management should be part of every company’s business plan. Part of that is meeting with a legal professional who can guide them so they’ll be better positioned when a problem arises. That should be on the agenda at meetings.
Often, counsel attends board meetings or company leaders visit to address issues such as policies and procedures for handling complaints and other employment issues. Believe it or not, there are a lot of companies that do not have employee handbooks.
Meet with counsel on a quarterly basis to make sure risk management procedures are in place and to ensure you have proper liability insurance, including directors and officers, and employment liability coverage. Make it part of the business plan to discuss preventative measures, so you’re better able to address situations as opposed to being reactive.
Do companies just not think about using outside counsel that way, or is it that they don’t want the expense?
It’s a little of both. Some people think that you use a lawyer only when you have a problem. But much of the problem can be ameliorated on the back end when there are preventive measures taken upfront. And, yes, there is a cost, but it’s often much less than waiting until a problem requires litigation. For example, if you don’t change your car’s oil, then the engine blows out and you’re paying $3,000. That type of analogy fits exactly for the use of outside counsel.
Plus, establishing an ongoing relationship with a law firm provides additional benefits. Counsel has experience dealing with other companies and exposure to how they have addressed employment issues. For example, a multiservice firm deals in many different disciplines and can help with insurance issues, obligations in real estate contracts and things of that nature.
Outside counsel should be viewed as an extension of your company that can provide assistance similar to in-house. It’s unfortunate that many companies don’t have a dedicated attorney to work with them and only seek legal assistance when there is a problem. When you reactively act on the defensive, things do not go as well as they could. Address issues head-on before they become the subject of litigation. ●
Insights Legal Affairs is brought to you by Ropers Majeski Kohn & Bentley PC
While brick-and-mortar stores add apps to reach customers on tablets and smartphones, e-commerce retailers are exploring ways to establish traditional storefronts, says Frank Kaufman, a partner and National Retail Practice Leader at Moss Adams LLP.
“The hottest topic these days is the omnichannel approach. Retailers want to engage customers at all points,” says Kaufman. “It’s about how you push information to consumers. That could be through text messages, social media, or signing them up for a geo program so you can identify their location and send a coupon to their phone when they’re near your store.”
Smart Business spoke with Kaufman about retail trends and the impact the Marketplace Fairness Act could have on the industry.
What does it take to implement omnichannel retailing?
Historically, brick-and-mortar stores were slow to embrace the Internet until there was a compelling argument to do so. It’s now evolved to a scenario where you have multiple avenues to engage the consumer at all points.
People are buying merchandise using smartphones, they don’t need to use a computer. With that in mind, how do you push information to consumers? It’s not just through traditional ads, but also texts and tweets.
Walgreens conducted a study that illustrated the effects of omnichannel. They measured annual sales at a base of $1 for traditional customers at stores. They found when that same customer goes online at some point to place an order, that goes to $2.50. And if they can get that person to load an app on a tablet or smartphone, that customer spends $6.
They go even further by giving the app the ability to map out the shortest distance to walk to find items in the store. Shoppers can get curbside service as well.
Pacific Sunwear enhanced the shopping experience by giving sales associates tablets. If a customer likes a garment, the associate can pull up a dozen other items that go with it and find them for the customer. Sales made through the tablets increased 50 percent over purchases at the registers. It’s all about giving extra value for someone coming into the store, making the experience better.
Why are e-commerce businesses interested in opening brick-and-mortar stores?
Even Amazon.com has said it’s going to find locations. One trend is buy today, have today, where you can buy online and pick it up at the store. It comes down to serving an immediate need. Even with Amazon Prime and free shipping, Amazon still can’t get items to the customer today. But the online retailer said it will not move forward until developing a model that’s different and unique to Amazon from the customer experience standpoint.
What impact will the Marketplace Fairness Act have on the retail industry?
The act, which requires online and catalog retailers to collect sales tax at the time of transaction, will ultimately pass; it passed the Senate in May and the House has it. The challenge is not getting agreement, but how to put it into effect. It’s not about having 50 states, it’s really 680 different jurisdictions and trying to determine where a sale has occurred and who gets the tax revenue. A company in California sells an item to someone in Ohio and it’s shipped from a business in New York — who made the sale?
However, what we’re finding is that it will not alter purchasing habits significantly, except for high-priced items involving $200 in sales tax or more. Studies show the impact on buying decisions is ridiculously low, less than 2 percent. Amazon went along because it knows it doesn’t matter — the convenience it can provide makes sales tax a non-factor.
It’s going to be a zero sum game because people will spend at the same level, it’s just that a portion of the funds will be redirected through the government channels and more money will go into local communities.
Whether consumers buy online or in stores, they are doing their homework. About 50 percent of purchases in stores have been researched online. It’s all connected. The goal for any consumer product company is to get an app on a smartphone, the device people have with them 24/7. Then combine that with a store where they can get it now. ●
Insights Accounting is brought to you by Moss Adams LLP