While executives generally recognize the need for a good accountant or lawyer, they often overlook the importance of a strong banking relationship. A bank not only provides the banking services and funds needed to grow, experienced bankers can provide expertise and the financial solutions you need to stay ahead of the competition.
“Your banker can provide a competitive advantage for your company by being a valuable resource for financial expertise,” says Pamela Campbell, senior vice president and San Diego regional manager for California Bank & Trust. “An annual checkup is a great way to see what you could be missing.”
Smart Business spoke with Campbell about the benefits of periodically evaluating your banking relationship.
Why is it important to evaluate your banking relationship on a periodic basis?
Professional bankers can identify potential barriers to success and proactively recommend a customized range of solutions before the need arises. They anticipate your needs as a result of taking time upfront and on a regular basis to meet with you to understand the specifics of your business. They tap into and share industry knowledge and ideally are given the opportunity to analyze your financial position through receipt and review of financial statements. For instance, if your goal is to market products overseas, your banker should, first, understand your goals and, second, suggest appropriate international banking services that will help make your strategic transition into new markets more effective. The relationship you build with your banker today can eliminate uncertainty and assist in achieving your immediate and long-term goals. This forward planning eliminates unnecessary stress and will yield dividends down the road.
What should executives consider when evaluating their banking relationship?
It’s critical to consider not only your business’s current needs, but also its future aspirations by asking these questions:
• Is your banker responsive and knowledgeable? Do you have someone at your bank you can rely on when your banker is not available? Your banker, along with the support of his or her team, should return your calls, texts and emails, and take responsibility to answer any questions or solve problems that may arise. He or she should not only understand your industry but also be able to identify appropriate solutions and take a hands-on role in helping you solve your business problems through referral to professionals within your community.
• Is the senior management team local and accessible? The fate of your loan may reside with a group of distant strangers. Having the ability to meet the local management team and share your business plan is an important part of building a solid banking relationship.
• Is your banker willing to invest time in building a relationship? Does your banker engage in an ongoing dialogue with you? Is he or she willing to meet on a regular basis or whenever the need arises? It takes two willing parties to have a productive relationship.
• Can your banker explain the bank’s lending philosophy? If your banker cannot do this, he or she won’t be as effective in serving as your advocate during the loan approval process. A seasoned banker, within a reasonably short period of time, should be able to determine whether the bank will be able to support your company’s lending needs. Their ability to review a transaction upfront and identify the strengths, and mitigate any potential weaknesses, will save your company time and provide the clarity to plan for the future.
• Is your banker invested in the local community? They will then not only understand the market and economy but also be committed to the success of their clients.
What would executives hope to uncover or discover during this evaluation process?
The evaluation should reveal whether your bank’s vision, policies, philosophy and staff align with the strategic direction of your company. Determine whether your bank possesses the credit appetite, expertise and services to grow with your company. For example, some banks may not be a good fit because they cater to a specific industry niche or maybe don’t offer the services you need to sell your products online or overseas. Your evaluation should reinforce your decision to stay or highlight the need for change.
What shows that changing banks is warranted?
First, do you have a banker assigned to your relationship? Your banker should be someone you can count on to solve problems, respond to requests in a timely manner, offer guidance, and even refer you to additional resources like attorneys, accountants and/or consultants who can help you develop and/or execute on a financial forecast or a business plan. Your banker should be part of a team of professionals you can rely on for support. You should consider a change if your current banker is unwilling to spend time with you, is nonresponsive when you have a request, or can’t explain the pros and cons of various loan or deposit products or what you need to do to qualify for them. If your bank can’t deliver when opportunities arise, you may need a different bank.
What should executives consider when selecting a new bank?
Certainly services and fees are important, but also consider the bank’s niche, its structure, and chemistry with the management team and staff. A community-oriented bank familiar with your industry may be the best bet for small to mid-sized companies because it is committed to helping the region thrive. This understanding of the local community combined with access to banking professionals who support your company with personalized service and proactive solutions will help you achieve your goals. A solid banking relationship reduces stress and helps you focus on the execution of daily activities. There’s no need to settle for a transaction-oriented bank when it’s possible to gain a competitive advantage through relationship banking.
Pamela Campbell is senior vice president and regional manager for California Bank & Trust. Reach her at (858) 623-1930 or firstname.lastname@example.org.
Busy executives probably haven’t read Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, so they may be surprised by the broad impact of the regulatory changes to over-the-counter (OTC) derivatives trading. In addition to fundamentally changing the way the market operates, the new laws could impact your bank’s appetite for risk, your ability to borrow funds and even your company’s hedging strategy.
OTC derivatives are traded and negotiated without going through an exchange or other intermediaries to hedge or speculate on risk. They were largely unregulated until this act.
“Any time there’s a fundamental change in the way a market operates executives need to understand the big picture,” says Scott Fung, DBA, associate professor of finance for the College of Business and Economics at California State University, East Bay. “At a minimum, the changes require increased knowledge of the interdependent relationships between the various parties, better decision making and a review of your risk management strategies.”
Smart Business spoke with Fung about the potential impact of the new derivative regulations and how executives should prepare.
Why should executives pay attention to the new derivative regulations and their market impact?
Following the financial crisis, policymakers decided that a lack of transparency and regulations in the OTC derivative market caused system-wide instability, so they created a regulated environment and increased the oversights and reporting requirements.With any legislation, there are reverberations throughout the business community and the possibility of unintended consequences, especially when the derivatives market provides the following key economic functions:
- Price discovery. Derivatives trading provides key information on the value of the underlying assets and serves as a predictor of future prices.
- Operational advantages. The derivatives market offers lower transaction costs and additional market liquidity.
- Informational and allocation efficiency. Derivatives trading enhances available market information and resource allocation.
- Business advantages. Derivatives allow companies to engage in risk management by facilitating hedging strategies and by reconfiguring risk and return trade-offs. The market allows unwilling risk holders to transfer risks for a fixed price, which frees up cash for other investments and business expansion.
What are the legislation’s key provisions and who will be impacted?
The new legislation establishes the regulatory framework for the governance of the OTC derivatives markets and vests oversight authority in the Commodity Futures Trading Commission and the Securities and Exchange Commission. The intent is to provide greater oversight and transparency for derivative transactions such as credit default swaps, commodities and equity swaps. Although the regulations primarily apply to swap dealers and major swap participants, they also impact commercial end-users, financial institutions and corporations. Key provisions include:
- Changes in execution processes and price discovery of OTC derivatives.
- Changes in central counterparty clearing and clearing requirements, trading activities, capital requirements and margining of OTC derivatives.
- Changes in the reporting of transactions and record-keeping requirements.
How are these provisions likely to fundamentally alter the OTC derivatives market?
The structural changes are supposed to improve the efficiency, stability, innovation and sustainability of derivatives markets by reducing the possibility of default, system-wide risk and financial crisis. In turn, this will improve the stability and functionality of the markets and financial institutions, ultimately impacting U.S. and global businesses. But it is unclear how these regulations will impact transaction costs, margin and collateral requirements. It’s also unknown whether they will actually curtail risk or tighten the credit market by limiting financial institutions’ hedging options along with their ability to customize derivative contracts. It will be interesting to see if the regulations produce changed trading activities and characteristics, so stay tuned.
How will the regulations impact U.S. businesses?
Any regulation that impacts the market or financial institutions impacts businesses because there’s an interdependent relationship between the various parties. Ultimately, the performance of financial markets and financial institutions affect corporate decision-making, financing opportunities, risk management and so forth. Possible benefits include enhanced functionality and stability of financial institutions, better performance of derivatives contracts, and the opportunity for end-users and institutions to better manage risk. Plus, the increased transparency and availability of information along with additional oversight could increase market participation, thereby boosting market liquidity. Possible downsides of the legislation include cost increases resulting from system complexities including transaction costs, collateral and margin requirements, and diminished customization capabilities.
How should executives prepare for the new regulations and the subsequent market changes?
Executives need to understand the interdependent relationship between financial markets, financial institutions, their suppliers and clients to see how their capital supply and financial resources could be affected. They should consider how they’re managing risk, as they may benefit from the enhanced usefulness and performance of derivative contracts. They also should look out for emerging opportunities and new financing products that may spring up. Executives need to understand the regulations’s intricacies to uncover new opportunities for risk management, financial innovation and ultimately value creation.
Scott Fung, DBA, is an associate professor of finance for the Department of Accounting and Finance, which is part of the College of Business and Economics at California State University, East Bay. Reach him at (510) 885-4863 or email@example.com.
It takes years for an owner to build a business, but only a few weeks for an unscrupulous employee to destroy all of that hard work by committing multiple acts of fraud. Approximately 75 percent of employees have stolen from their companies at least once over the course of their careers, according to the International Foundation for Protection Officers, and about half of those offenders will steal again.
The risk is greatest in small to mid-size companies with limited staff, where one person is solely responsible for processing financial transactions and signing checks.
“Executives are asking for trouble if they don’t background check prospective employees or segregate financial transactions because the accumulated losses from internal fraud are capable of bringing a small company to its knees,” says Charlie Ott, a vice president and regional manager for security at California Bank & Trust, a wholly-owned subsidiary of Zions Bancorporation.
Smart Business spoke with Ott about the growing risk of employee fraud and the most effective ways to prevent it.
What are some common types of internal fraud?
Trusted employees, with access to the company’s bookkeeping system and bank accounts, can siphon off funds by setting up phony vendors in the accounts payable module and paying erroneous invoices. Or, they may surreptitiously switch account numbers in the online bill pay system and use company funds to pay personal credit cards, mortgages and car payments. Some use software to replicate blank check stock or insert their name into the payee line. Other times, they submit phony receipts on expense reports or deposit company checks into their personal accounts.
Fraudsters spend every day looking for opportunities and honing their craft, and they’re bound to succeed unless you are vigilant and take a few preventative measures.
Which preventative measures are most effective?
Internal fraud starts with people. So even if you hire referrals from trusted employees or family friends, it’s critical to conduct several interviews, a background investigation and reference checks before extending an offer. Repeat offenders often target small businesses due to their lax vetting practices, and background checks aren’t that expensive when you consider what’s at stake.
Once you have established strong hiring practices, consider opportunity. Based on your business and accounting practices, where do opportunities exist for an employee to defraud your business? What controls are in place to deter employees from defrauding your business? You can mitigate opportunity by making it difficult for fraudsters to conceal their deeds, which is done by apportioning accounting and banking duties among several employees and conducting random checks on financial and banking activity. As an example, have one person open the mail and enter invoices into the system, another approve the payments, and a third person sign the checks, make deposits and reconcile the monthly bank statement. Finally, safeguard the company’s legal filings and resolutions so fraudsters can’t access sensitive company information and use it to open up a phony bank account. Typically, fraudsters test the waters by stealing a small amount of money to see if anyone notices, then they increase the frequency and volume of their illicit activities. Also, they typically act alone; rarely do they act in concert with someone else, as that raises the risk of getting caught.
Is there a way to minimize the risk of check fraud and counterfeiting?
Keep cancelled checks and blank check stock under lock and key, and only release small batches of checks as necessary. Take advantage of your bank’s fraud prevention programs like positive pay and reverse positive pay, which are specifically designed to spot and stop payment on counterfeit, altered or forged checks. Even if your company is small and writes very few checks, you can still look for altered, forged and counterfeit checks or account anomalies by using online banking to view activity and photos of cancelled checks. Finally, don’t let the bank statement sit on your desk; nip fraud in the bud by reviewing your statement the minute it arrives.
What can executives do to avert technology breaches and phishing?
Every company should have virus protection software and a firewall installed on its network, and executives should ask their banker about programs like Trusteer that are specifically designed to spot fraudulent or suspicious electronic banking activity. Keep hackers from gaining access to accounts by using a standalone computer to process banking transactions, utilizing dual authentication and having two people approve transfers of funds between accounts. Educate employees on the risk of phishing and fraudsters’ tactics so they aren’t duped into providing passwords or login information. Never allow multiple users to use the same password or logon name. Keep passwords under lock and key, changing them from time to time, especially when an employee leaves or takes on different responsibilities.
How can executives help prevent fraud?
Don’t be so consumed with growing your business that you overlook the need to establish rigorous accounting policies and procedures or communicate a zero-tolerance policy for deviations. Inspect what you expect by ensuring accounting procedures are followed and seek professional advice by commissioning an outside audit annually. Spot irregularities by reviewing accounting and banking activity at least once a week and ask questions so employees know you’re paying attention. Ask about a sudden increase in invoice activity, the addition of a new vendor or a large change in account balances. Spend time with employees and have lunch in the cafeteria occasionally because you might be surprised at what you learn by just hanging around.
While it may be impossible to eliminate internal fraud, you’ll be able to minimize it as long as you’re vigilant and take a few precautions.
Charlie Ott is a vice president and regional manager for security at California Bank & Trust, a wholly-owned subsidiary of Zions Bancorporation. Reach him at (510) 808-1644 or firstname.lastname@example.org.
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Superior knowledge management (KM) is often credited with boosting shareholder value, jumpstarting innovation and improving customer service, but with little evidence to support vendors’ heady claims, executives have to rely on faith instead of facts when approving costly initiatives.
Finally, research confirms that acquiring, sharing and using knowledge in meaningful ways definitively improves a company’s return on assets, sales and operating income.
“We only had soft evidence to support the link between superior KM and the bottom line,” says Jiming Wu, Ph.D., assistant professor of management for the College of Business and Economics at California State University, East Bay. “Now after studying the results of 62 companies, we’ve confirmed the link between superior financial performance and superior knowledge management.”
Smart Business spoke with Wu about the tangible and intangible benefits of superior KM.
What is KM and what types of knowledge does it typically include?
KM generally refers to a tool or automated system where companies gather, archive, analyze, and share tangible and intangible information from a variety of sources. In most companies, knowledge is scattered across the enterprise; it resides in databases, documents, manuals and people’s heads. The disparate formats and locales make it virtually impossible to tap or review holistic data when tackling business problems, and efficiency is compromised because business units and managers operate independently.
Top-performing firms use accumulated data to solve business problems, create new products, educate employees or drive operating efficiencies. For example, KM helps managers proactively spot patterns and relationships among customer complaints, product returns and diminishing sales. In turn, they eliminate restocking costs by altering product designs or instruction manuals, which boosts goodwill, sales, market share and the bottom line.
What are the benefits of a knowledge management system?
The top benefits include:
- Superior knowledge acquisition: Centralization allows executives to measure knowledge collection and make it a priority. Plus, a KM tool reduces the tendency for a manager to collect and hoard separate data.
- Superior storage and retrieval: KM systems allow companies to collect, organize, codify, store, safeguard, and access institutional knowledge and data. Without a tool or program, information stored in a variety of formats and systems can’t be retrieved or analyzed, and staff turnover often results in the loss of critical institutional know-how.
- Superior sharing and dissemination: It’s easy to share best practices and foster collaboration when everyone shares the same goals and has access to the same information. Plus, studies show that superior KM is capable of transforming run-of-the-mill companies into powerful learning organizations.
- Superior decision-making: It’s hard to make good decisions when managers have to react to problems. KM lets them analyze suppliers, customer preferences and the competitive landscape so they can forecast the impact of a new product on revenue, accounting, manufacturing and distribution, customer service and the bottom line. Our research revealed that superior KM firms are more efficient and profitable because they use data instead of hunches to anticipate problems, establish priorities and align valuable resources.
How does superior KM create a competitive advantage?
Companies get a leg up on the competition when they use a unique resource like KM to streamline business processes, reduce production costs or accelerate R&D. They tend to originate, design, test and release new products faster than the competition, and be more efficient because products are better aligned with marketplace needs. For example, engineers can nip defects in the bud by reviewing focus group feedback and adapting the design or manufacturing process before production. Marketing can eliminate seasonal revenue dips by reviewing customer demographics and buying cycles and creating unique advertising campaigns or promotions. You’ll prevail anytime you can produce something better, cheaper or faster than others, and knowledge is the key to outhustling the competition.
What did the study reveal about the link between superior KM and superior bottom line performance?
We studied the financial performance of 62 firms in reaching our conclusions. Half the firms were deemed to have superior KM because they were better at mobilizing and applying their resources to problems and they resolved issues more quickly than other firms. On average, the superior KM firms were 5 percent better in four key categories: return on assets, return on sales, operating income to assets and operating income to sales. Not only were the superior KM firms more profitable, they garnered more income from each dollar of their assets.
How can executives tailor benchmarks and measure the return on KM initiatives?
Because KM initiatives tend to be costly, executives need to track a variety of tangible and intangible measures to gauge the return. Intangibles include the time and resolution rates for customer problems because those should improve when agents, engineers and production managers have access to centralized information. Next, look for decreased cycle times in R&D and whether you’re developing and releasing new products faster than the competition. Finally, track tangible measures, such as your company’s growth rate, revenue, market share and profitability. If you’re exceeding industry norms, it’s probably due to superior KM, because now we know that the link between superior KM and superior financial performance is no coincidence.
Jiming Wu, Ph.D., is assistant professor of management at the College of Business and Economics at California State University, East Bay. Reach him at (510) 885-3099 or email@example.com.
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The recent uptick in sales is like a breath of fresh air for beleaguered business owners — unless they don’t have enough cash to meet rising expenses while they wait out a typical invoicing cycle.
A conventional line of credit may seem like the prefect solution, but since an owner’s personal and business finances are intertwined, those who fell behind on mortgage payments or bills during the recession may not qualify.
“Owners need short-term funding to carry receivables and hire staff now that the economy is improving,” says Paul Herman, small business lending manager at California Bank & Trust. “Their best bet is a short-term line of credit (SLC) since bankers primarily focus on a company’s cash flow cycle during the underwriting process.”
Smart Business spoke with Herman about the opportunities to grow your business by tapping a short-term line of credit.
What is an SLC and when are they advantageous?
Essentially, an SLC is bridge financing. Savvy executives tap the line to pay expenses between the time revenue is generated and receivables are collected. For example, they may need cash to purchase supplies or inventory to handle seasonal spikes or new contracts before the goods are finished, delivered and paid for. Contractors frequently use an SLC to pay bonding and insurance premiums so they can bid on new projects, and veteran attorneys and doctors often use the funds for operating expenses when they launch a new practice.
You can draw on the line as needed and repay the funds at will as long as you meet the terms of your agreement and attend periodic reviews with your bank.
How does an SLC differ from other loans?
It’s assumed that owners will pay down a short-term line as cash is received, so bankers are primarily concerned with how quickly a company converts receivables into cash when they consider an SLC request.
Long-term debt is typically used to purchase equipment, buildings or other fixed assets, so bankers must consider depreciation as well as a company’s profitability to assess its ability to service the loan. In fact, stable but slow growth is often a key indicator of a company’s ability to service debt over the long term, while an SLC is the perfect solution for cash flow shortages resulting from a growth spurt.
Are there risks associated with an SLC?
No loan is risk free. However, prudent owners can avoid default or cash shortfalls by following these best practices:
- Accurate forecasting — Some owners are so afraid of taking on debt that they run out of cash because they don’t ask for a large enough line. This won’t happen if you accurately forecast your company’s growth and cash conversion cycle. In fact, it’s better to ask for the maximum limit since you have the option of drawing the funds as needed.
- Be disciplined — Only use the funds to close short-term cash flow gaps. Otherwise, you may run out of money and have to liquidate assets to pay bills or meet payroll.
- Be responsible — Bad debt, delinquent customers or risky business practices can leave well-intentioned owners holding the bag. Are you ready, willing and able to accept responsibility for managing your company’s credit, cash flow and an unmonitored credit line?
How can a business maintain the quality of its assets and increase borrowing capacity?
Owners often emphasize sales, but what good is top-line growth if the margins are bad or you can’t collect your hard-earned money? Even tenured customers may encounter a cash crunch as the economy rebounds, especially if they wait too long to secure short-term financing. Be disciplined about verifying a customer’s credit worthiness, keep an eye on receivables and don’t forget to make timely collections calls.
Finally, don’t ignore your balance sheet because a business can’t survive with high debt and little equity. Grow assets as well as revenue, and make sure your balance sheet reflects the norms for your industry.
What do bankers consider when evaluating a request for an SLC?
In addition to reviewing traditional underwriting criteria like business and personal credit scores, bankers want to know whether you have the means and ability to manage and repay a line of credit.
They’ll look at your industry experience, the viability and diversification of your customer base, along with the ebb and flow of your company’s cash flow during previous cycles. Will your customers pay on time? Can your business survive if one customer defaults? Do you have enough personal assets or sources of secondary support to pay your bills while you wait for an invoicing cycle to conclude?
Bankers may be able to use government guarantees to overcome minor risks, and you could qualify for a conventional line of credit down the road if you use an SLC as a stepping stone to build your credit score and your company.
Paul Herman is the small business lending manager at California Bank & Trust. Reach him at Paul.Herman@calbt.com.
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It’s not surprising that the cost of labor was cited as the second-largest executive concern in CFO Magazine’s Global Business Outlook Survey, as the total cost of employee compensation often accounts for 40 percent to 70 percent of a company’s operating budget. The challenge is in finding a way to attract, motivate and retain top performers without breaking the bank.
“You can’t succeed by taking a one-size-fits-all approach,” says Jed DeVaro, Ph.D., chair of the Department of Economics, College of Business and Economics, at California State University, East Bay. “Companies need to analyze historical data, elicit employee preferences and strategically allocate expenditures to maximize their return on employee compensation.”
Smart Business spoke with DeVaro about the process of aligning employee compensation with critical business goals.
How can aligning compensation boost the success of major business initiatives?
While compensation alone won’t ensure the attainment of the business plan, customized, strategic alignment of total rewards increases the likelihood of success. The key is taking a data-driven approach so that pay and benefits are allocated toward the positions and workers that yield the greatest return, require in-depth training or who are difficult to source.
Most companies are sitting on a treasure trove of historical data, making it possible to ascertain the cost and output for each position at specific tenure levels and strategically apportion compensation to yield the best return. For example, you probably need to pay market rates for software engineers and project managers because unplanned turnover of these scarce professionals can increase development costs and the productivity of these professionals increases over time. However, you may be able to pay below market for customer service agents who reach maximum productivity levels within a few weeks.
In addition, a review of previous successes and failures helps companies tweak designs and allocate expenditures toward programs that have successfully attracted, retained and motivated top performers in the past.
How can early stage companies gather the necessary data to calibrate compensation?
While the basic tenets of the compensation alignment process remain constant, early stage companies need to adapt their approach due to a lack of historical data and their need to attract and retain nontraditional candidates. For example, startup firms often want energetic risk-takers who are willing to accept a smaller salary in exchange for stock options.
It’s important to gather current market intelligence instead of waiting until turnover occurs or relying on third-party wage surveys that are often out of date. Human resources can help ascertain competitive positions and employee preferences, and proactively design an effective plan by following up with lost candidates, conducting exit interviews and informally surveying referred candidates.
What kinds of compensation practices can boost employee retention and productivity without breaking the bank?
Employers often think they have to pay top dollar to attract, retain and motivate employees, when these innovative, budget-friendly techniques are equally effective.
- Positive work environment. Being nice to your employees may not be the first thing that comes to mind when you consider compensation strategies, but workers are less likely to leave or become disenchanted if they feel appreciated and appropriately challenged. Salary usually comes in second or third in surveys of employee preferences, while a positive work environment is often their top priority.
- Reasonable hours. Even if you can’t give large raises or bonuses, you can boost hourly pay for salaried employees by reducing their work hours and letting them go home instead of scheduling a two-hour meeting for 4 o’clock on Friday.
- Customized benefits. Instead of offering the standard fare, optimize benefits expenditures by creating programs that resonate with your employees and your prospective talent pool. For example, young tech workers may prefer career development, training and certification stipends, while more mature workers with family obligations value flex time and a robust retirement program.
- Team incentives. Group incentives boost overall performance by encouraging top performers to mentor and train neophyte or less-skilled workers. Team incentives aren’t a substitute for individual rewards, but they serve as a rising tide that raises all boats.
- Deferred compensation. When strategically applied, deferred compensation can help employers retain scarce-knowledge workers or control the exodus of retirees to coincide with long-term business cycles or shifting labor market conditions. Examples include unvested stock options, which act as a cost lever by slowing or hastening the departure of employees.
What else can employers do to maximize their return on total compensation?
First and foremost, listen to your employees because they will tell you what they value and whether they’re motivated by raises, bonuses or other perks. Informal conversations are the best way to gather intelligence because employees can become disgruntled if employers conduct surveys and then disregard their opinions. Second, ensure that top performers receive the largest raises and bonuses relative to actual, observable differences in productivity. Awarding raises based on discretionary criteria or a manager’s desire for reciprocal favoritism in 360-degree surveys can result in pay inflation or compression and erode the efficacy of a pay-for-performance program.
Finally, treat employees well. It’s easy for executives to lose sight of the fact that compensation goes beyond salaries and benefits. A positive work environment and a windfall of free time may be more valuable than working 60 hours a week for a nominal raise.
Jed DeVaro, Ph.D., is chair of the Department of Economics for the College of Business and Economics at California State University, East Bay. Reach him at (510) 885-3289 or firstname.lastname@example.org.
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Is cash more important than profits? It actually may be, as profitable companies fail every year simply because owners don’t have enough cash to pay their bills.
The problem is so pervasive that the U.S. Small Business Administration cites insufficient capital as the No. 2 reason that small businesses fail. And insufficient cash flow may keep owners from making advantageous hires or acquisitions, or even from receiving a paycheck.
“It’s easy to lose track of cash when you are under stress and juggling multiple responsibilities,” says Pamela Glass, project manager and mobile and online banking expert with California Bank & Trust. “Fortunately, cash flow management doesn’t have to be a burden or an afterthought thanks to the availability of online and mobile banking.”
Smart Business spoke with Glass about the ease and advantages of managing cash flow through mobile and online banking.
What types of transactions are available through mobile and online banking, and what are the benefits?
Almost any banking transaction can be initiated over the Web or from a smartphone using a mobile application, giving business owners the opportunity to seize control and hang onto their cash longer. For example, instead of waiting to go to the bank, owners can make deposits any time and control the timing of invoice payments from anywhere in the world using their mobile device.
They can transfer money from a general account into a payroll account right before payday, schedule vendor payments, or pay sales and payroll taxes on the due date by initiating ACH transactions. Essentially, they have the ability to view and manage their company’s cash position at their fingertips 24/7.
How does online banking improve the accuracy and convenience of cash flow forecasting?
Business owners don’t have to wait for their monthly statements to arrive to close the books or reconcile accounts. Now, they can forecast cash flow, analyze trends and make advantageous moves by downloading transactions and e-statements over the Web. They can then import the information into accounting programs such as QuickBooksTM or Quicken®.
Having instant access to credit card transactions, loan balances, deposits and invoice payments helps business owners estimate cash conversion cycles, identify cyclical revenue trends and spot opportunities to put excess cash to work. Some owners have used the information to improve cash flow by offering clients discounts or other incentives for quick payments, while others have offset seasonal downturns by offering customers complementary services. Still others have launched month-end sales to reduce inventory and raise cash before large invoices come due. Online banking evens the playing field between small and large businesses by giving owners access to the same data and sophisticated analytical tools enjoyed by Fortune 500 CEOs without the hefty price tag.
How can owners use online bill pay to improve cash flow?
Online bill pay gives owners the tools and the confidence to negotiate discounts by making bulk purchases or paying bills on time. Because they always know their company’s cash position, owners can schedule payments in advance, wire funds or tap a line of credit to pay invoices. In addition, they can cancel or delay a payment if there’s an issue with a vendor’s product or service, and they can control cash outflow by giving employees specific authority levels and approving transactions online. Online bill pay reduces fraud, the number of errors and late payment penalties by making it easy for multiple people to review and approve every transaction.
How can business owners control cash by monitoring transactions online?
Owners can improve cash flow by tracking incoming wire transactions and initiating collections calls to tardy customers, or they can discuss a client’s payment history and terms during a visit by accessing data from their smartphone. Essentially, there is no reason to wait for payment when clients can pay invoices electronically or via credit card, and owners have the ability to monitor transactions online. But if a client wants to pay by check instead, owners have the ability to deposit the funds into their bank account on the spot from their smartphone.
From a business owner’s perspective,time is money, so one could say that online banking is a windfall. Employees can initiate transactions, balance accounts and make deposits right from the office, and owners can pay down loan balances, check credit lines or approve transactions from cabs, airports or coffee shops. Visits with a banker can center on strategy, revenue-generating opportunities and relationship building instead of on routine banking transactions.
Is online banking more expensive than traditional banking services?
Online banking costs no more than traditional services. In fact, it is more cost effective when you consider the cost of checks, postage, gasoline, employee time and travel. How much will you save by reducing days sales outstanding by a few days, paying down debt or avoiding fees and penalties by paying your bills or taxes on time?
Do business owners need a connection to process mobile or online transactions?
Online banking is accessible over the Internet or mobile Web. Mobile banking is available through providers such as AT&T, Verizon, T-Mobile and Sprint on a variety of devices, including BlackBerry, iPod Touch, iPhone and Android*. Given the convenience and ease of online and mobile banking, there is no reason why cash flow management can’t be a simple, daily activity.
Pamela Glass is a project manager and mobile and online banking expert with California Bank & Trust. Reach her at email@example.com.
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It’s become so difficult to create mindshare for a product or service that companies are increasingly counting on celebrities to do the heavy lifting. Celebrities now appear in about 15 percent of U.S. advertisements, and AdAge estimates that companies invest $50 billion each year on corporate sponsorships and endorsements.
But do the rewards of celebrity endorsements justify the cost or the risk? There’s no doubt that some campaigns have been very successful, but the jury is still out on the overall effectiveness of celebrity advertisements. Some experts estimate that Tiger Woods’ debacle cost shareholders of the companies he endorsed up to $12 billion.
“We have a celebrity-driven culture so the ads make a lot of sense in a cluttered marketplace,” says Jagdish Agrawal, Ph.D., interim dean and professor of marketing for the College of Business and Economics at California State University, East Bay. “But executives need to proceed with caution because hitching your brand to a celebrity is expensive and can be fraught with danger.”
Smart Business spoke with Agrawal about the dos and don’ts of celebrity endorsements.
How do celebrity endorsements work and are they really effective?
While celebrities are capable of creating brand awareness or projecting a certain image, studies show that they have a limited impact on sales. Consequently, executives must set realistic goals and select the right endorser to ensure a campaign’s effectiveness. For example, hiring an attractive actress to promote a beauty and cosmetics line is a good idea since customers automatically assume that the endorser is credible. Or, using a rugged, professional athlete to tout a line of jeans is a viable strategy as long as his or her persona supports the product’s brand and desired image. In fact, studies show that a company’s stock price rises when a new endorsement deal is announced as shareholders anticipate a boost in sales. But the stock price typically retreats within a few weeks as the deal’s luster starts to fade.
However, a celebrity is capable of driving sales if he or she is a recognized expert in his or her field, and if the celebrity takes an active role in the product’s development and promotion. Tiger Woods successfully designed and marketed a line of golf clubs, and several celebrity chefs have used their expertise to design and promote gourmet cookware and accessories.
When should companies consider celebrity endorsements?
Celebrity endorsers are particularly effective when it is hard to distinguish one product from another or when a company needs instant credibility to penetrate a new market. Studies show that people pay attention when they see a celebrity and tend to remember a product or service that a celebrity pitches. For instance, using a glamorous actress to promote a luxury resort or expensive jewelry line is a good idea since customers use feelings or emotions to make those types of purchases. But when customers base buying decisions on research and facts companies are better off using a noted expert instead of a diva. A tennis aficionado may listen to Maria Sharapova’s recommendations about a racquet’s tension and flexibility but will scoff at that advice if it comes from Kim Kardashian.
What are the keys to selecting the right spokesperson?
The celebrity must resonate with your audience and be viewed as someone who would use your product or service. Therefore, consider a spokesperson’s age, image and strategic brand alignment when making your selection. For example, soft drink and snack companies often engage up-and-coming recording artists to attract youthful customers or they may try to evade the advertising doldrums by taking a tongue-in-cheek approach and hiring someone like Betty White. On the other hand, financial services companies need to garner prospective customers’ trust so they tend to hire veteran actors or former news anchors who exude wisdom and integrity. After all, you probably wouldn’t buy securities from Justin Bieber but you might listen to Sam Waterston or Tom Brokaw. Aside from the strategic match, do your homework because you don’t want to hire a celebrity who may be involved in a scandal down the road.
How can companies avoid the fallout from celebrity missteps or scandals?
Hiring multiple endorsers helps companies avoid the fallout from a scandal since customers won’t associate their brand with a single promoter. For instance, Nike wasn’t fazed by Tiger Woods’ marital problems because it was able to run other ads, but his unforeseen issues blindsided Accenture and decimated its entire campaign. Hiring a celebrity for his or her expertise rather than image or personality is another way to avoid the fallout from a scandal, since professional reputations built on experience and success can generally withstand the impact from a personal miscue.
What else should executives know before shelling out funds for a celebrity spokesperson?
Sometimes a CEO or CFO knows a celebrity and tries to sway the decision. Instead, let the ad agency do its job since it understands the complex nature of endorsements and knows which celebrity has the image and personality to resonate with your customers. Also, don’t overestimate the return or effectiveness of a celebrity advertising campaign. It’s not a magic cure-all for lagging sales or a bad product; it’s just another way for a good company with a quality product or service to stand out in a crowd.
Jagdish Agrawal, Ph.D., is the interim dean and professor of marketing for the College of Business and Economics at California State University, East Bay. Reach him at (510) 885-3291 or firstname.lastname@example.org.
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After toiling for years to build a successful enterprise, business owners have earned the right to leave on their terms and retire. However, nearly half of owners fail to achieve their timing or financial goals because they focus on day-to-day operating challenges instead of creating viable exit strategies.
“Procrastinators usually end up dying with their boots on, when they could be enjoying the fruits of their labor by planning ahead and orchestrating a seamless transition,” says Greg Chiampou, director of Business Advisory Services for Contango Capital Advisors, which operates as CB&T Wealth Management in California.
Smart Business spoke with Chiampou about the process of creating a proactive exit strategy.
When should owners initiate the planning process and who should be involved?
Ideally, owners should begin to plan five to seven years before they want to leave because it takes that long to stage for an ownership change. It also may take up to three to five years to establish a complementary estate plan. Planning ahead gives owners time to groom successors or implement structural changes that enhance a company’s value and maximize sale or transfer proceeds by reducing tax liabilities. Assemble a transition planning team that includes a certified exit planner, CPA and attorney, who may get support from an insurance adviser, business appraiser and financial planner.
Why is goal setting paramount and what should the goals address?
The owner’s goals serve as the plan’s foundation so the owner must decide when he or she wants to leave, who will take over the business and how much money he or she needs to support his or her lifestyle. Then, the planning team can flesh out the details and assess the feasibility of the owner’s objectives by using models to test the plan’s elements. For example, testing may show an owner will have to sell to a third party instead of transitioning ownership to children or employees in order to derive enough proceeds to generate an annual income of $500,000.
Who should perform the valuation and cash flow projections?
Since the business is usually the owner’s largest asset and its value is a critical element of the strategy, owners need an accurate, objective appraisal. Engaging a certified appraiser or valuation specialist doesn’t have to be expensive, and the peace of mind generally is worth the investment. Verify business and personal cash flow estimates by asking a CFP to review the accuracy of the financial assumptions.
How can business owners enhance their company’s value before a sale or transfer?
Tactics that can boost a company’s value include:
- Mitigating concentrated risk: Expose concentration risks such as a limited customer base, suppliers or products by giving owners the opportunity to secure long-term sales or supplier contracts, or increase vendors and product offerings before a sale.
- Separating assets: Strategically transfer ownership of major assets like a warehouse, office complex or franchise agreement to a separate LLC, which can boost overall value.
- Conducting audits: Identify and rectify financial discrepancies, environmental hazards or legal vulnerabilities by auditing your finances, property and legal profile.
- Documenting operating procedures and retaining critical talent: Confirm continuity with organizational charts, documented procedures and secure key players. Buyers won’t pay full price if critical operating procedures, employees and institutional know-how could depart with the owner.
- Staging: Prepare to tell prospective buyers how sales growth and earnings can be maintained and possibly expanded. Ensure your office or production facilities look like they deserve the asking price. While purchasing new equipment or furniture can boost a company’s image and value, don’t take on significant new debt ahead of a sale.
How can owners minimize the tax liabilities resulting from a sale or transfer?
Aside from the actual purchase price, taxes have the biggest impact on the proceeds from a business sale or transfer. Ask an exit adviser and CPA to review your strategy and suggest ways to reduce or eliminate capital gains and estate taxes. For instance, converting a C-corp to a S-corp can eliminate double taxation on the sale of business assets, and estate taxes can possibly be eliminated by gradually gifting shares to your children or transferring ownership to a family limited partnership or limited liability company. In fact, highly appreciated assets can be converted into a lifetime income without paying capital gains tax when the asset is sold by setting up a charitable remainder trust.
What should owners consider when developing a contingency plan?
Even the best succession plans can be thwarted by the defection of key employees or customers, the sudden death of a partner, an unanticipated cash shortage or a scion’s desire for a different career. That’s why every organization needs a contingency plan that provides solutions to game-changing problems and events. Examples include buy-sell agreements that govern should an owner die or decide to leave, employee-retention bonuses backed by insurance and a mentoring program for successors. Given these tools and a little time, a team of skilled advisers can ensure that business owners exit smoothly.
Wealth management services are offered through Contango Capital Advisors, Inc. (Contango), which operates as CB&T Wealth Management in California. Contango is a registered investment adviser, a nonbank affiliate of California Bank & Trust and a nonbank subsidiary of Zions Bancorporation. Some representatives of CB&T Wealth Management are also registered representatives of Zions Direct, which is a member of FINRA/SIPC and a nonbank subsidiary of Zions Bank. Employees of Contango are shared employees of Western National Trust Company (WNTC), a subsidiary of Zions Bank and an affiliate of Contango.
Investment products and services are not insured by the FDIC or any federal or state governmental agency, are not deposits or other obligations of, or guaranteed by, California Bank & Trust, Zions Bancorporation or its affiliates, and may be subject to investment risks, including the possible loss of principal value or amount invested.
Greg Chiampou is director of Business Advisory Services for Contango Capital Advisors. Reach him at email@example.com. Reach California Bank & Trust at www.calbanktrust.com.
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Online banking is convenient, but it’s easy for cybercriminals to gain access to your accounts when you process transactions over the Internet. Organized criminal gangs are using malware and phishing schemes to steal approximately $1 billion from small and mid-sized companies across the United States and Europe each year, and the problem has become so pervasive that a recent theft of $100 million from a business account barely registered on the FBI’s radar.
The good news is that it’s possible to enjoy the convenience of online banking without exposing your company to unnecessary risk by taking advantage of a bank’s products and services and exercising some basic precautions.
“Cybercriminals pose a real and serious threat,” says Barry Langer, first vice president and customer relations manager for Corporate Services at California Bank & Trust. “Executives need to educate themselves and understand the risks, then take some basic steps to safeguard banking transactions.”
Smart Business spoke with Langer about balancing risk and convenience by protecting your bank accounts from the most common forms of fraud.
How are cybercriminals attacking business accounts?
Companies incur risk whether they’re writing checks or processing online payments, but the greatest threat occurs in cyberspace. When an unsuspecting employee opens an authentic-looking email or document from an imposter, wily cybercriminals can steal user names and passwords by downloading malware such as the Zeus virus onto computers. Cybercriminals can also embed viruses in Web sites, innocuous Word documents such as resumes or simulated email alerts from social networking sites such as Facebook. Unfortunately, employees often fail to recognize an attack because the virus is programmed to evade network security, giving fraudsters access to your accounts. Worse yet, anyone can purchase the Zeus Trojan for about $700.
How can companies minimize risk and the possibility of fraud when processing online banking transactions?
Your employees need to serve as the first line of defense, but they need training to recognize cybercriminals’ tricks and tactics and thwart potential attacks. In addition, companies need to notify their bank immediately if they suspect a breech.
Businesses should also:
- Eliminate outside risk. Don’t rely solely on security software, antivirus programs and firewalls. Protect your system from viruses and malware by stopping employees from downloading documents stored on external flash drives or CDs, or accessing outside email accounts. Better still, keep viruses from invading your network by using a dedicated computer strictly for banking transactions because most viruses are transmitted via email or while surfing the Internet.
- Reconcile accounts. Nip fraudulent activity in the bud by reconciling your business accounts daily.
- Take advantage of bank products and services. Your bank can help you prevent fraud by providing education, best practices and tools such as antifraud software.
- Implement a dual authentication security process. This is another way to prevent online payment fraud, as different people create and approve each transaction. While the duplicate process requires additional time and staff, it reduces the opportunity for someone to initiate or approve fraudulent payments.
How can companies minimize the risk of paper or check fraud?
Unless companies use a fraud prevention service such as Positive Pay, forgers can wash payees’ names from stolen checks and substitute their own, alter the amount or use software to duplicate checks. With the Positive Pay service, companies send a check issue file to their bank and it is matched against checks presented to identify discrepancies or suspect checks. Checks that do not match the check issue file are presented to the company for examination. While it’s not free, Positive Pay has the ability to lower costs by reducing unauthorized transactions, potential losses and legal fees.
Positive Payee Match provides another layer of security, as your bank also matches the name of the payee against the roster of issued checks. You can also review the front and back of exception items online and quickly make payment/return decisions from the convenience of your office.
If you don’t want to provide a check issue file, you can monitor presented checks online and return them immediately by utilizing an alternate service called Reverse Positive Pay.
How can companies prevent ACH fraud?
Savvy companies are reducing risk without sacrificing convenience through a service called ACH Positive Pay, which enables you to view and make decisions to accept or reject ACH items before they post to your account. If reviewing every transaction is too time consuming, simply create a filter and review and approve transactions above a specified dollar limit.
How can executives spearhead fraud prevention efforts?
Executives must set the tone by acknowledging the seriousness of the threat and prioritizing risk mitigation over convenience when processing banking transactions. Small to mid-sized businesses are particularly vulnerable to cyber attacks, so executives at those companies should utilize the risk assessment tools and best practices provided by your bank. Remember, an ounce of prevention is worth a pound of cure because a single attack can easily cost your business hundreds of thousands of dollars.
Barry Langer is first vice president and customer relations manager for Corporate Services at California Bank & Trust. Reach him at (213) 593-3838 or Barry.Langer@calbt.com.
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