Adam Burroughs

When family is involved in your business it can be a wonderful thing. However, the lines between professional and personal can blur if relationships are not managed properly.

“When you have family in the business you’re going to multiply the complication factor by 10,” says Ricci M. Victorio, CSP, CPCC, managing partner at Mosaic Family Business Center.

“You’re walking a very thin wire between being deliriously happy working together and causing tremendous grief in the business or with the family,” she says. “I truly feel there is no business gain worth a family loss.”

Smart Business spoke with Victorio about ways to work with family to the benefit of the company and with as little animosity as possible.

How can a family member be brought on without creating a rift? 

For example, your nephew graduates from college and your brother calls to ask if you can find a job for him in your company. This puts a lot of pressure on that relationship, as well as the managers in your company who will be responsible for your nephew. This is why it’s important to have a family member employment policy in place before young family members are ready to enter the work force, such as when they’re in high school or college. The policy establishes the criteria for a family member to qualify for a job at the company. It sets the level or type of education, the desired skill set, mandates that no job will be invented for a family member unless it’s needed by the company and determines that pay scales will be commiserate with those of non-family members.

Your managers should appreciate your family employment policy, as it will address the complicated family issues before they happen. It also clarifies with family the qualifications and the experience they’ll need to work at your company.

How can you gauge a family member’s work performance objectively?

Develop an additional policy called a performance expectations agreement. It outlines, with the help of managers, a successor development program, which is important especially if you have a vision for the next generation of ownership.

Through the development program, managers are assigned to mentor the family member and help prepare them to be the next generation manager. It also identifies behaviors that, if unchecked, could lead to significant problems, such as tardiness, a bad attitude or producing sloppy work.

The agreement of behavioral and performance expectations should include regular reviews that allow a manager the opportunity to offer ongoing feedback in an organized way.

How should the firing of a family member be handled?

Very delicately! Generally, you fire a family member for doing something really bad — stealing from the company, coming to work drunk or even worse, violent behavior — because you would never allow any other employee to stay on with that extreme behavior.

But before you fire a family member, look to see if this person is in the right job. Perhaps you have an introverted person who is being asked to do extroverted sales work when he or she would be better analyzing data. If this is the job they have to do and they’re not performing well, they’re probably not happy and are left struggling to please the family. If they’re not well suited, where do they belong? And if it’s not in the family business, provide an educational or transitional plan to get them in the right career. This will go far in preserving the most precious asset — family harmony.

How should stock ownership be handled in a family business?

Stock ownership qualifications can be built into a stock ownership policy — just because you’re a family member and in the business doesn’t mean you’re qualified to own stock.

Those in the business should have controlling or voting stock, while those not in the business can own non-voting or restricted stock because they likely won’t understand the decisions that need to be made. Having a stock ownership qualification policy can include provisions to prevent unnecessary battles between active and nonactive shareholders.

How should these policies be created?

Your attorney will draft the legal language of these policies, but the family, owners and your succession adviser determine the intentions or principals of the policy. You’ll determine the intention, how it will work in certain scenarios and talk through topics in an open way to get an outline. Your attorney will confirm the principals, point out the ramifications of certain provisions and formalize the language. The outline typically becomes an addendum in the shareholders agreement and is presented to the next generation family member, along with the family employment policy and expectation agreement.

How are personal and professional relationships best maintained?

As in any partnership, clarifying your vision, objectives, expectations and measurable outcomes is fundamentally important. As you’re determining an equitable workload, the functions can be so different that one can feel as if one is getting the mine and the other is getting the shaft. Determine the best way to work together, how often you’ll meet to talk about the business, how you’ll support your personal relationship and handle differences of opinion. Talk about both business and life objectives so you can support each other in life and work.

It’s important to establish boundaries. One couple working together determined that at the end of the day they would meet, review the day and set up for the next, then stop talking about business. It changed their relationship. Family business coaching can help establish these boundaries.

Ricci M. Victorio, CSP, CPCC, is managing partner at Mosaic Family Business Center. Reach her at (415) 788-1952 or

Insights Wealth Management & Family Business Consulting is brought to you by Mosaic Financial Partners

The changes occurring with the implementation of the America Invents Act (AIA) are important for the United States and for anyone thinking about filing a patent application. The AIA puts the U.S. on the same first-to-file patent system as the rest of the world. This means that the first person to file a patent application is the first to invent. However, because of the changes, companies need to be more vigilant about their inventions and act quickly when they have something patentable, especially in industries that are highly competitive.

“There needs to be a plan of action,” says Sarah S. Brooks, an Attorney at Stradling Yocca Carlson & Rauth. “Have a patent attorney lined up and have someone monitoring the technical department so your company can file right away. This might involve restructuring the company’s reporting chain.”

Not adapting to the new rules could mean someone else claims your invention first.

“If you don’t file and you’ve got something on the market that you’re selling, there’s nothing stopping another company from taking that and filing their own patent application and they’ll be the presumptive owner. So there are serious consequences for not filing right away,” she says. “If this occurs, there is a process called a derivation proceeding that could help you if you can show that the patent applicant derived its invention from you, but you will have an uphill battle because you have to prove this by substantial evidence and it may be difficult to get this evidence.”

Smart Business spoke with Brooks about the AIA and what companies should do to prepare for the changes it brings.

What is the AIA?

The AIA, passed in 2011, is the biggest change to U.S. patent law since the 1950s. The U.S. Patent and Trademark Office (USPTO) has a backlog of patent applications, and the new law is an effort to streamline the patent system.

The major change coming through the AIA is to move to a first-to-file system, which aligns the U.S. system with what the rest of the world uses. Previously, the U. S. was on a first-to-invent system, which meant that even though you didn’t submit your application first, you could prove you were the inventor by going through an interference proceeding to determine the proper inventor. However, interference proceedings were contributing to the backlog in the USPTO. Therefore, the AIA attempts to streamline the process with the derivation proceedings previously


What are the key changes in the act that companies should know about?

In addition to the first-to-file provision, which takes effect March 16, 2013, there will be a significant change affecting the grace period for public uses, patents, publications and sales. Previously, you had one year from a prior patent, publication, public use or sale in which to file your patent application. Now, that grace period has been eliminated with just a few exceptions. The one-year grace period now only applies to prior sales and publications of the inventor, not to prior sales and publications of others. In addition, the AIA also bars someone from getting a patent if his or her invention is sold anywhere in the world by anyone other than the inventor before a patent application was filed.

One more change, meant to streamline litigation, is a new proceeding called a post-grant review. Through this, a third-party can claim your patent is invalid on any grounds within nine months of the patent being issued. Post-grant reviews will offer a cheaper solution than standard litigation in the courts and may be used instead of re-examinations, which are similar but don’t operate within the same time frame.

Finally, the AIA allows a company to file a patent in its own name if the invention has already been assigned to the company or if the inventor is obligated to assign the patent to the company. This eliminates the need to file assignments with the USPTO.

How does the AIA change the way companies should conduct business going forward?

You can’t sit on your invention, especially with the rush to the patent office seen in certain industries, like the smartphone industry. Previously, you could go through an interference proceeding to prove you were the first to invent, but that’s been eliminated and replaced with the derivation proceeding in which it will be harder to prove you are the true inventor.

Filing for a patent quickly won’t be a problem for big companies that have the infrastructure already in place. It will be problematic for smaller companies and independent inventors because they don’t have their own in-house legal department and the process is expensive. Therefore, you’ll likely need to line up a patent attorney.

You also have to be careful of another bar to your patent. If someone other than the inventor is making, using or selling an invention or publishing information about it, there is no one-year grace period for this type of prior art. Prior art is all public information disclosed about an invention before a given date.

Will the AIA simplify or make the patent system more complex?

It will likely do both. It will simplify and streamline the process in some ways, such as possibly increasing the speed with which applications are granted. But while people and companies are getting accustomed to the new rules and what they mean, there might be an increase in litigation. Further, although there has been lots of publicity about the AIA, most of the news is about the change to the first-to-file system, not the other changes coming that are just as important and have to be dealt with.

Sarah S. Brooks is an Attorney at Stradling Yocca Carlson & Rauth. Reach her at (424) 214-7025 or

Insights Legal Affairs is brought to you by Stradling Yocca Carlson & Rauth

Data, stored digitally, has become critical to a business’s ability to function. However, major catastrophes — from fires to earthquakes to floods —can cripple hardware and put terabytes of a company’s data at risk in just a moment’s notice. In light of this risk, it is vital to have a business continuity plan in place to protect your digital information.

“A business continuity plan is insurance for your data,” says Pervez Delawalla, president and CEO of Net2EZ. “It ensures that your business can sustain a disaster that affects your ability to access data at your main site.”

But, as with any emergency preparedness drill, you need to implement and practice your business continuity plan now, before you need it, as once a disaster strikes, it may be too late.

Smart Business spoke with Delawalla about data security and the role it plays in a business continuity plan.

What is a business continuity plan and how can it impact a business?

From a technology perspective, a business continuity plan is your strategy for resuming business following a natural or man-made disaster in as short a period of time as possible. Your plan should be based on the type of data you create on a daily basis, how it is being maintained and the amount of time your business can operate without being able to access it.

Business plans differ from company to company. For example, take a retail operation that tracks customers’ purchasing habits, and suddenly that information is unavailable because of a hardware failure. That data set isn’t as critical to the business as its ability to process customer credit cards, which is why a business should have multiple plans based on data type. If you can’t sustain being down more than a few minutes, that data is critical, and that plan will look different than plans that pertain to data you can live without for hours or days.

Business continuity can save a business even when there is no disaster. Accidental removal or deletion of certain data sets can be very damaging to a business. However, if you have a business continuity plan and regularly back up your data, you will have less reason to worry and will be able to sleep much better knowing your data is safe.

What are the elements of a business continuity plan?

First, determine how you will back up your data. Critical information should be backed up every hour. Less critical data can be backed up more infrequently.

Backing up data can be a mundane task, and some companies assume it is happening, only to find out after a disaster that it is not. Make sure data is being backed up and secured off-site so that, if you can’t get to your office, the data is available to you. Your backup site should be outside of your primary location.

Second, you need a plan to restore your data when things come back online. Test your off-site server to understand how much lag time there is until data can be restored and employees can start using it to continue business operations.

Third — and this is where a lot of businesses are now looking — is outsourcing your primary server farm or infrastructure to an outsourced data center. A typical outage or inaccessibility of data can occur because of power or cooling failures, as most buildings are not designed for multiple levels of data redundancy or for a major connectivity failure from the fiber on the street.

Outsourcing your server to a data center means it is housed in a facility with multiple levels of redundancy designed to sustain power outages and that has multiple, high-speed connections coming from diverse entrances so data can be accessed even if the fibers are cut in the street. You can use facilities such as these as your secondary server, no matter where your business is located. Then, if something happens, you will have access to your data and can continue to function.

When should a business continuity plan be implemented?

The minute you have critical data, you need a plan to back it up. It depends on the type of business. If you provide a consulting service and your first few months are spent creating proposals, it is not as critical to back that up as long as you have a second copy or could recreate it. However, businesses with more critical data should protect themselves immediately.

With the economic downturn, many companies cut the aspects of their business continuity plan that dealt with data protection because it doesn’t get used until a disaster hits, and it is an easy area to squeeze the budget. Businesses are saying they have a limited budget and they have to continue to operate, so they will just deal with it when it happens. But by then, it is too late.

How does geographical diversity play into business continuity?

Consider what a disaster can mean to your operations and what your business can sustain in terms of cost. The farther your backup servers are from your primary site, the more it costs to transfer information from one place to another. Smaller companies could likely use a public connection to transfer data without incurring too much cost.

The farther away you keep your data, the more redundancy you can create with a solid plan. However, the more redundancy you create, the more costs increase. It is less expensive if you keep your data closer to your primary location, but it also increases your risk, for example, in the event of an earthquake or hurricane. But, ultimately, the question you should ask is, ‘How long can I afford to go without

access to my data?’

Pervez Delawalla is president and CEO at Net2EZ. Reach him at (310) 426-6700 or

Insights Technology is brought to you by Net2EZ

Business owners who are trying to grow their companies are focused on getting to the next level, and treasury management may not be a high priority.

By outsourcing this function to a third party, owners can maintain their focus on the business while relying on trusted advisers to take on the responsibility for understanding and managing the transactions associated with the business’s cash flow cycle. Outsourcing frees business owners from the time-consuming job of handling receivables and disbursements so they can pursue opportunities that will directly impact their business growth and bottom line.

“Outsourcing allows you to work with a business that has the tools to help manage processing receivables and disbursements faster and more efficiently, streamlining workflow to get transactions related to the ins and outs of the cash flow cycle done in a timely manner,” says Kacy Karl Owsley, senior vice president, treasury management sales manager for Cadence Bank.

Smart Business spoke with Owsley about how outsourcing treasury management functions can benefit business owners.

Why should companies outsource their treasury management functions?

An owner’s main focus is running the company and selling services or products. In smaller environments, there is not a lot of time for the manually intense process of handling receivables and disbursements. Outsourcing treasury management functions to an entity that has the most up-to-date tools and security features can save both time and money.

Outsourced capabilities can be complex, and it can be expensive for a small business to have that technology in-house. By outsourcing, you get the benefit of bulk processing, technology and use of an environment accustomed to handling many more transactions than you typically process. By outsourcing these functions, you can speed up the process and optimize your cash. This allows you to access your funds more quickly, invest more timely or pay down your line of credit faster, all of which impact your bottom line.

Another reason to outsource treasury management functions is growth. Smaller companies that are growing quickly don’t have the infrastructure, whether people or processes, to sustain that growth. If you build outsourcing into your growth model up front, you don’t have to build in people and processes related to treasury functions. This leads to a scalable environment because you can outsource that workload.

Which treasury processes are typically outsourced?

It depends on the ins and outs associated with a cash flow cycle for a small business owner. You can outsource simple tasks such as printing and mailing checks, or more complex tasks, such as invoice processing, approval and payment routing.

With your cash flow cycle, there are businesses that can take on that process for you. It could be on the receivables side. For example, you don’t have to be at the office or the mailbox to get your mail when you can have a provider receive your mail, make a timely deposit the same day, and provide you with images of what was processed and deposited into your account that day.

On the payables side, your outsourced vendor can receive invoices, scan them and receive a Web-enabled image of your

approval. After receiving your approval, a payment can be made on your behalf.

What should each business consider when outsourcing?

There are multiple options related to your internal business model when there is a lot of growth predicted over a short time. You have to be positioned for growth or have a provider ready and able to take on the transactional volumes of those accounts. There is also a cost difference between processing transactions in-house and having a secure infrastructure to do so, and using an outsourced vendor who has a more streamlined process. Because of the volume that vendors deal with, they can save you money in processing expenses with things such as bulk rates, postage, check stock and data keying.

Make sure your vendor has the capabilities to take on the unique needs and customization that you require in processing, as not all providers are flexible. You may have a unique process around a certain type of transaction, and you want to ensure that your outsourced vendor has the capability to perform that process. Also make sure the vendor has the flexibility to process transactions and provide real-time information and access to the data associated with the transaction. Having the capability to obtain information while you are mobile can make you a more powerful business owner.

Finally, you need to understand the contingency and disaster recovery plans for the outsourced vendor and how quickly its systems will fail over to its contingency model. Make sure that if you have pending transactions and there is a disaster that they are still being processed in a timely manner, even while in contingency mode.

How can a business establish a strong relationship with its outsourced vendor?

Your provider should buy in to the finite details related to what you are outsourcing. You want them to understand your business, the type of transactions you need processed, the processes you want to outsource and how far you will take the outsource relationship — whether fully integrated or with intermittent manual integration. Your provider should fully understand what your business model looks like to ensure that they are prepared for the possibility of changing scenarios and making transactional volume adjustments.

Kacy Karl Owsley is senior vice president, treasury management sales manager for Cadence Bank. Reach her at (713) 871-3917 or

Insights Banking & Finance is brought to you by Cadence Bank

Enterprise Content Management (ECM) enables organizations to go beyond traditional document management by providing an integrated enterprise platform for managing the complete life cycle of information, automating content-centric business processes and enabling records management.

“Companies are using ECM in a wide variety of ways to solve diverse business problems. New technology innovations are rapidly increasing the capabilities of ECM, making it an even more useful tool,” says Prashant Kothari, head of ECM practice for HTC Global Services.

Smart Business spoke with Kothari about ECM and how it can help organizations manage ever-growing content and information.

Why ECM is important?

An ECM platform can help organizations to gain better control of content and information. It also helps streamline business processes to increase productivity and efficiencies, thereby reducing costs. An ECM platform brings all the information together in a way that helps knowledge workers to make decisions faster.

What types of businesses can benefit from using ECM?

It can benefit nearly every business that deals with content in both forms – paper and electronic. Content could include documents, emails, faxes, multimedia, transaction records and other digital assets.

ECM is critical for any business that is dealing with challenges such as large volumes of content that need to be made more accessible and usable, inefficiencies in completing operational tasks that require content for decision making, or regulatory compliance mandates that require greater control over unstructured information within the organization.

How does business process management tie in, and what benefit does it offer to a business using ECM?

Business process management (BPM) enables automation of manual business processes. It provides a comprehensive set of workflow capabilities for the end-to-end automation. This helps automating task assignments, triggering tasks on a specific event or decision making using predefined rules.

It integrates content with business processes, thereby helping an organization to make timely decisions using the most accurate information available. Such capability can reduce cycle times and improve productivity across the entire organization and deliver significant return on investment.

What is the process of setting up an ECM system for a business?

The ECM platform provides software components that can be used in standalone mode or with other components as a unified platform.  At a high level, these components can be grouped by functionality for imaging, content and data capture, content management, process management (workflow), records management, electronic forms, collaboration and business rules management.

The process starts with the assessment of content management needs and process management needs (if any). Identify the type of content that needs to be managed and the format of the source content. How and who all will need access to the content once it is stored in a repository?

This assessment is then used to identify the ECM software components that will be used to implement the solution. Once the ECM components are identified, hardware and infrastructure requirements are defined.

The solution is then designed by defining configuration for content capture, management of various content types, users access, user roles and security, system integration, storage for repository, and reporting. The software is then configured and customized as per the design.

There are several ECM software products in the market to choose from, and these products can be procured and set up in-house, or hosted by external vendors. Some ECM vendors are now offering their software via cloud (or SaaS) model as well.

Typically, to setup an ECM environment, one has to set up ECM software components and database software on appropriate hardware (server/s). Configure storage devices such as Storage Area Network to set up content repository. Configure network administration and a security server such as Active Directory for setting up user authentication and defining access privileges. Configure content ingestion tools to import content from various source such as email, fax and online. Set up scanners and/or multifunction copier machines for scanning paper documents.

Implementation of advanced features could require configuring workflows, deadlines and content retention policies. Some products provide features to define search templates that can be configured for each business group to enable easy way to search, retrieve and view content.

What should a company expect to invest in an ECM system as far as time for installation, training employees to use the system and updating and maintaining it?

That varies depending on the size of the organization and its needs. Implementation of a basic system requires minimum time and training. Users can easily learn the system within a couple of days. However, if it’s a complex solution that incorporates business process management, then the implementation and training could take few weeks.

From a support perspective, these products are very stable and don’t require significant effort to maintain and support. However, periodically, one has to review database growth, and storage needs to handle the growth in content and transactions. Manage user accounts and also monitor logs for transactions occurring within the system and verifying users accessing the system.

What is the return on investment?

It increases as you move up from basic imaging and document management features to advanced workflow automation and legacy integration to electronic discovery and content analytics features. However, for a business that primarily relies on paper for all type of information could achieve significant ROI with just a basic system. This basic system could address challenges of managing paper, content sharing and delivery, disaster recovery, business continuity and regulatory compliance.

ROI is calculated on a case-by-case basis by considering factors such as the current cost of information capture, information management, storage, sharing, processing, and communications management. Typically the efficiency gained by implementing ECM goes from 20 percent and beyond.

Prashant Kothari is head of ECM practice for HTC Global Services. Reach him at (248) 530-2555 or


Insights Technology is brought to you by HTC Global Services.

With provisions of the America Invents Act beginning to roll out, it is a good time to review the overall patent process. Here we review the early stage from conception to filing the application.

An inventor’s idea should be matured to the point where it has been built or described in sufficient detail that it can be built in order to file a patent application. This early stage is also a useful time to perform a search to help determine how close the invention is to related techniques that already exist. It is also important for inventors to understand certain patent laws during this stage to secure a filing date for the patent application that avoids bars to potential patent rights .

“With the new laws, particularly the ‘first to file’ rule, it is important to keep track of your disclosures and to move forward with your filing sooner rather than later,” says Alan Brandt, an associate with Fay Sharpe LLP.

Smart Business spoke with Brandt and associates Namit Bhatt and DeMarcus Levy about considerations to be mindful of during the initial phase of the patent process up to the point of filing the application.

When is an idea 'ready for patenting'?

There is a difference between conceiving an idea and being ready to file a patent application. You are ready to file if you have built a prototype of model of the invention or when you have written a description with enough detail to practice the invention. The stage at which your idea is 'ready for patenting' is called reduction to practice (RTP).

RTP includes two forms: actual and constructive. Actual RTP means that the inventor has built and used the invention for its intended purpose. Constructive RTP occurs upon the filing of an application with a detailed description of the invention.

What is eligible for patent protection?

The patent statutes define four categories of subject matter eligible for patent protection -- process, machine, article of manufacture and composition of matter.

  • Process – an act or series of acts or steps.
  • Machine – a tangible thing with parts and/or a combination of components.
  • Article of manufacture – an article produced from raw materials or assembled from components.
  • Composition of matter – a chemical compound or mixture of ingredients.

The invention is defined by the claims of a patent application. A machine is defined by apparatus claims, while a process is defined by method claims, an article of manufacture by apparatus claims and a composition of matter by chemical claims.

There are some exceptions to the statutory categories, which are rooted in a premise that basic tools of science and technological work are not eligible for patent protection. These include laws of nature, physical or natural phenomenon, scientific principles and abstract ideas, which are disembodied concepts, or mental processes without specific applications or structural limitations.

How does the invention relate to the 'state-of-the-art'?

The common misconception among inventors is that the novelty of the invention must be a broad, game-changing advancement of technology. Such advancements are indeed patentable. However, incremental changes or minor improvements can also be patentable.

Novelty is one requirement for patentability of an invention. To satisfy the novelty requirement, an existing technique must not include every aspect of the invention; if it does, the existing technique is said to anticipate the invention. Another hurdle to patent protection is obviousness. In order to be non-obvious the invention must not have been obvious to a person who works in same field at the time of the invention.

A patent search can be performed prior to moving forward with a patent application to get a better understanding of how the invention relates to the 'state-of-the-art.' Performing a search is not required, but is useful in identifying, for example, related existing techniques that never made it to the storeroom shelf. The search can help avoid expenses for a patent application in which the invention is unexpectedly close to some search result. The search can also ensure that inventors are aware of features of the invention that currently exist and features that are more likely to be deemed novel.

What actions by a patentee can bar patent protection of the invention?

An invention can be barred from patent protection by a public disclosure. In the U.S., there is a one-year grace period in which to file a patent application after public disclosure of an invention. In some countries, there is no grace period and public disclosure is an immediate bar to patent protection. Public disclosures can include describing the invention in a printed publication; putting the invention on display or in public use; and offering to sell the invention or including it in a product release.

How should filing the application be coordinated with actions that can otherwise bar patent protection?

Ideally, a patent application is filed prior to the earliest planned public disclosure of the invention. This preserves potential patent protection in all countries. If the invention has already been publicly disclosed, the patent application must be filed before the expiration of the country’s grace period. For example, in the U.S., there is a one-year grace period after public disclosure. In some countries, there is no grace period. The American Invents Act implements a 'first-to-file' system which acts as an incentive for inventors to file patent applications as soon as possible in order to establish priority over another inventor filing a patent application for a similar invention.

Alan Brandt, DeMarcus Levy, and Namit Bhatt are associates with Fay Sharpe. Reach them at (216) 363-9000 or

Insights Legal Affairs is brought to you by Fay Sharpe LLP

Real estate as an investment can take many forms. For example, you can buy an apartment building or a retail store and collect the rent, or you can own the building in which you work and rent it to yourself for tax purposes.

“You can choose to either invest in a company’s debt through stocks or in the actual real estate that houses the company,” says Terry Coyne, SIOR, CCIM, an executive vice president with Grubb & Ellis.

He says the investment market for real estate is growing across the country and now is a great time to get involved because interest rates on loans are so low.

“The best way to affect the return on your investment is to get the lowest interest rate you possibly can get on your loan. The higher the interest rate, the higher the return needs to be for you to break even on your investment, but interest rates are really low right now,” Coyne says.

Smart Business spoke with Coyne about how to use real estate as an investment vehicle.

What should someone know before investing in real estate?

It is important to understand that real estate is illiquid. If you expect to get out of an investment in less than three to five years, real estate is not for you. You have to gauge your liquidity threshold.

The investment’s illiquid position also means that it can be tougher to price than other assets — your investment could be worth more or less the moment after you buy it.

If you have a need for a short-term investment, real estate is not an investment for you. However, if you tend to overreact to market fluctuations, real estate investments can keep you from selling early because it is more difficult to sell your investment.

What types of real estate investments are available?

There are several, and you need to examine which asset class best suits your position — office, industrial, retail, multifamily housing, land, mini storage or medical. Each one has its pros and cons.

Office property investments take a lot of capital because you will likely need to suit the office space to accommodate each tenant. Industrial properties don’t take as much capital and are often a simpler deal.

Medical property investments are all the rage now because it is almost quasi-retail and location becomes important. However, it is expensive to build out and it is difficult to move.

Investing in land can be the more challenging of the real estate investments because it is incredibly illiquid. If you choose to invest in land, you had better have a long time horizon and be prepared for the laws to change on you. You have to be patient and smart if you are buying land.

Mini-storage is akin to investing in a business — part real estate investment and part business investment. Similarly, owning an apartment building is a business investment. Before you make an investment in this type of property, you should know what you are getting into.

Buying the building that houses your business is more of a tax play. When you are buying and leasing to yourself, the rent is taxed at a lower rate than income. However, as the landlord and tenant, you can’t call someone to fix a problem. But if you take care of the property and take advantage of the property tax claims, you could offset your lease payments.

You could also invest in real estate through the stock market by investing in a real estate investment trust (REIT). This gives you some exposure to real estate investing but with the liquidity you find with stock. It is a good way to learn about the market before making a more illiquid investment and can serve as a halfway step to investing in a physical building.

What else should you consider before choosing a property?

After you have determined the liquidity risk and asset class, select the area in which you’d like to make the investment and set your budget. Once you have gone through these initial steps, find someone who is an expert in the asset class, location and price point you’re working with to help you find the right investment. Choose a broker from a national firm, as that person will be able to help you compare investments from across the country.

What are the risks associated with real estate investment?

Just as you have determined your liquidity threshold, you also have to decide your risk threshold. You are buying a physical asset, and if you’re paying two or three times what it costs to replace it, you had better make sure that the credit of the tenant is worth it.

A very good, credit safe investment tends to have a high cost per square foot that is much higher than the replacement cost. But if you have a low-credit tenant that goes bankrupt, you’ll be stuck with a building that needs significant capital to improve, and you may not be able to find another tenant to take the space. So what you’re really investing in is the credit of the company.

As an investor, the more responsibility that you put on the tenant, the less you are involved. The best deal for a landlord is triple net, in which case the tenant pays the real estate taxes, building insurance and maintenance. However, the triple net leases tend to be more expensive for the tenant. The opposite of this is a gross lease, in which case the landlord pays for all property charges and maintenance.

Terry Coyne, SIOR, CCIM, is an executive vice president with Grubb & Ellis. Reach him at (216) 453-3001 or

Insights Real Estate is brought to you by Grubb & Ellis

Sunday, 30 September 2012 21:01

How to maximize your banking relationship

Establishing a good relationship with your banker is beneficial to your business because a bank can be a source of ideas to improve your company.

“Think of your banker as an extension of your team, just as your CPA or attorney is part of your advisory team,” says Susan D. Steiger, vice president, commercial loans for Lorain National Bank.

“When we come out to see you, we don’t have the meter running. It’s part of our job to spend good quality time with our clients. We don’t send you a bill at the end of a meeting, so it’s something you should take advantage of,” she says.

And if your banker understands your business, he or she can bring you ideas that make your life easier.

Smart Business spoke with Steiger about how to establish a better working relationship with your lending partner.

How should business owners get their bank involved as they consider making investments?

Get your banker involved early when you’re weighing any kind of investment. Ideally, we’d like to be the first call when you have a major strategic move to consider. Whether an acquisition, buying out a partner or making a capital investment, it’s always better to start the discussion sooner rather than later.

Use us as a sounding board, bounce ideas off of us. We may have advice on structuring the deal or may have seen similar situations with other clients, so use that experience to your advantage.

On the other hand, you may be a nonborrowing client who doesn’t anticipate a need to borrow; maybe you’re just using the bank’s treasury services. It still is wise to begin a regular dialogue with your banker; the relationship ideally should be established before you have a borrowing request. Invest the time to educate your banker about your business, your markets and your industry — it will pay dividends down the road.

What else should a business owner expect from a banking relationship?

You should expect to have access to multiple levels in the organization.  Make sure your banker is introducing you to others, especially top management. Your banker is your primary point of contact, but he or she is only one person and no one person is calling all the shots. Others at the bank are part of your team too, and you’ll benefit from everyone’s experience.  Interaction with all the bank’s decision makers will pay dividends when your next credit request goes before committee.

We can also connect you with other valuable advisors.  It’s our responsibility to introduce you to others, both inside and outside the bank, who have relevant experience.  It might be for treasury management, investments or estate planning solutions, or tax advice — we can give you access to those professionals.

When is it a good time to talk with your banker about problems?

From the get-go, be forthcoming with information, both good and bad. It just is not a good practice to surprise your banker. When something happens seemingly out of nowhere, it raises red flags. We need to know if you’ve just lost a major customer, your new product launch is delayed or you’re in danger of tripping a loan covenant.

It’s a banker’s job to understand your business, and we know things don’t always go as planned. It is much better to deal with it as soon as you know about it because then we can help plan and strategize the next steps. Remember, we’re your advocate inside our organization.

Positive news often requires advance planning, as well. So let us know if you have just landed a major contract or are in negotiations for the purchase of a new warehouse.

How often should you be talking with your bank?

Your banker should be scheduling annual reviews with you. If not, then ask for it. This annual review is part of keeping the lines of communication open, but it also serves as a more formal process to review your year-end financials and the outlook for the coming year as well as to discuss any other needs you might have. But certainly meet with your banker quarterly, if not more frequently, on a more informal basis.

Also, get the other key people at your company involved in these meetings. Banks like to see that you have bench strength on your team and that the whole business isn’t being carried on your shoulders alone.

How crucial is it to negotiate rates?

Price isn’t everything. It is not necessarily the best strategy to negotiate every rate and price down as low as you can go. In the long run, if your banker is forced into that kind of relationship, when things get tough, he or she may not have the staying power to maintain the relationship. The financial relationship has to be a win-win. If the company is doing all of these things to foster a good relationship, it is going to get competitive pricing over the long haul.

I think it’s often frustrating for owners or managers to deal with the bank. They just would rather not do it or would rather delegate it to someone else, perhaps their controller. But that interaction is too important to ignore. The success of any relationship — personal or professional — always comes down to communication; it is the most important variable.

We are people and we are in a people business. Communication over time builds trust, and mutual trust is at the core of any good relationship. Everyone pays lip service to it, but it really is the key.




Susan D. Steiger is vice president, commercial loans for Lorain National Bank. Reach her at (330) 655-1824 or

Insights Banking & Finance is brought to you by Lorain National Bank

Smaller businesses often don’t have the wherewithal to enforce their patent rights because pursuing this type of litigation is very expensive, and they lack the expertise. However, the rise of nonpracticing entities (“NPE”) — organizations that enforce patents against alleged infringers with no intent to manufacture or market the invention — have made this an area that businesses need to take seriously.

“When you are a company that has one or two patents in an area and you’re fighting against an entity with hundreds in that area, it’s difficult to win,” says Michael G. Craig, a patent attorney with Brouse McDowell.

If you don’t have a standalone IP protection program, you’re losing revenue now, have lost it in the past and will continue to do so in the future.

“In the past, people assumed patents were a trophy for smart people to hang on their walls,” he says. “Now companies are monetizing their IP. Studies have shown that some 50 to 60 percent of a company’s worth comes from trademarks alone. These are commodities that need to be monetized. If you don’t have a strategy to do that, you are losing revenue.”

Smart Business spoke with Craig about NPEs and the importance of IP protection strategies.

What is a nonpracticing entity?

There are different types of nonpracticing entities. Generally, NPEs own and enforce patents but don’t intend to manufacture the products or provide the services associated with them. They instead enforce the patent rights in other ways. Some NPEs purchase patents from companies that don’t have the wherewithal to enforce those rights, doing so through licenses or lawsuits against infringers. These are groups created solely to buy up the intellectual property of others and enforce those rights without any other business plan or means of revenue.

Some entities hold defensive patents. Companies can partner with them for protection against lawsuits, and collectively, they become a harder target because they’re part of a group. There is also the purchase of patents for offensive purposes, such as buying patents to take over a segment of the market and force others to leave or enforce their rights.

Patent trolls are another aspect of NPEs. They hold patent rights, wait for someone to monetize the idea and then pounce. EBay’s one-click purchase — which allows buyers to bypass the bidding process and buy the item instantly — was a victim of a patent troll, as was BlackBerry, which had a patent troll sue it for its technology, worth hundreds of millions of dollars.

Why are NPEs significant?

They can drive the way a company’s patent strategy is developed. NPEs don’t have anything to lose when enforcing their rights. When you are sued, you have to allocate resources to defend your rights, which takes money away from your core processes. NPEs’ resources and business models are designed to enforce patents. You need to understand what NPEs are doing because they change the landscape of IP, and you need to develop an R&D strategy to navigate it and determine where you fit in.

You can join an aggregator, which is an NPE that aggregates IP property for the benefit of having safety in numbers. Those that join them can use the IP of others, as well as the aggregator’s resources for protection, offensively or defensively. And because the cost of a lawsuit is so deleterious, most will give up their IP rather than pursue a lawsuit. Also, when you practice in an area, particularly one that utilizes an industry standard, such as wireless networking, there is likely to be an NPE from whom you, or your parts supplier, may need to license the technology.

What can companies do to protect themselves from NPEs?

There is an overarching concern in the industry that there is no protection against an NPE. The reality is, under the current legal system, NPEs are not doing anything wrong. They would say they are just protecting the rights of inventors. IP is actually property that can be bought and sold and infringements against that need to be protected.

Err on the side of overprotection. Managing IP may seem expensive at first, but as far as costs associated with patenting or licensing, in the long run, the payback is tremendous.  Further, you need a strategy to deal with NPEs in areas in which you do business, such as licensing agreements and hold harmless agreements.

IP programs should have the use of legal professionals to help them determine what is worthwhile to patent and how to go about it. A lot of companies have brainstorming sessions to come up with a list of ideas of what to patent, then flesh them out and go to their legal professionals with a list of ideas to determine which are worth protecting and the costs to do so.

Also, every company needs to have a strategy on how to protect their IP when certain situations arise, such as a potential infringer or infringement.

What should companies do when they are in a potential infringement situation?

That can be an anxious time, particularly if it is a product that drives your business. Your first call should be to an attorney who specializes in that area to analyze the claim to see if it has merit. They could contact the other party and negotiate because you don’t want to reach litigation. The worst thing you can do is put your head in the sand, because after you have been notified, it becomes willful and the penalties can add up.

You don’t need to reach that point. If a company is unsure of what the next step should be, contact a professional to manage the process. All you need is a little help to point you in the right direction and periodic management from an attorney to help along the way.

Patents are assets that need to be exploited and monetized. The IP landscape is changing, and those who don’t recognize this and look at the other way are going to be left behind.

Michael G. Craig is a patent attorney with the Intellectual Property Group at Brouse McDowell. Reach him at (330) 535-5711 or

Insights Legal Affairs is brought to you by Brouse McDowell

Borrowers often assume that because they have made all their payments in a timely manner, renewing their line of credit will be as easy as it has been in the past. However, this is not the case, says Kenneth R. Cookson, attorney with Kegler, Brown, Hill & Ritter.

“The lending environment is different now and the conditions that allowed some borrowers to run the lines up to the maximum amount and simply pay the interest have passed,” says Cookson. “While in earlier years, it was almost automatic that timely payment of the monthly interest alone would make renewal easy, today, being a ‘loyal customer’ is nearly irrelevant to the renewal process.”

Smart Business spoke with Cookson about the lending environment and how changing conditions have affected it.

What challenges are banks currently facing?

In the post-Great Recession regulatory environment, banks are facing a combination of focused regulations and declining values in real estate portfolios and borrowers. They have pressure on their capital requirements and reserve requirements. When a loan is classified as less than perfect, there has to be a reserve established from a bank’s capital to offset the portion of the loan that is in jeopardy, which can eat into capital reserves quickly.

Banks are being subjected to a loan-by-loan analysis by regulators and they are trying to get ahead of that by going through their own portfolios to figure out which loans are speculative and which are not.

Further, a bank may feel regulatory pressure when it has a high concentration of loans in one industry with similar borrowers, so it may hedge its risk. The borrower may be surprised that the line of credit is not extended because the business has made payments on time, but the bank may feel that it is too exposed in that particular area.

How are banks coping with these regulatory requirements?

They are certainly increasing their lending standards. The ratio of loan-to-value has come down, particularly in the real estate market, where a 70 percent loan-to-value ratio is not an unusual request. When you couple that with a decline in real estate values, it really amplifies the state of the conditions and the difficulties for both lenders and borrowers.

What is happening to borrowers?

Borrowers, in many cases, are being caught unaware. They have had a line of credit with a bank for many years and don’t deal with a commercial banker very often. They will send in financial statements annually, the revolver is generally renewed and the rate goes up or down according to market conditions.

Now, bankers are having trouble renewing those lines of credit and are reducing them, or imposing other requirements that have not been enforced previously, such as not allowing borrowers to take out the maximum on their line and just pay the interest for a full year. The borrowers express surprise, asking, ‘Why shouldn’t making timely payments make the renewal of that loan automatic?’

The answer begins with the regulatory requirements on banks and concentration issues, the value of the portfolio of the collateral supporting the loan, an increase in loan-to-value ratios and cash flows.

If it is a real estate loan or one backed by accounts receivable, and the value of either or both has gone down, leading to the appropriate ratios established in the loan document to not be in line, the loan could be classified downward. Borrowers need to understand a bank’s regulation reviews, internal reviews and lending policies, and be prepared for that.

What can borrowers do to help themselves through this?

Borrowers should make sure that their financial statements are current, accurate and complete. Look at your internal records and make sure that your accounts receivable are all good, and if they are not, work to discover the problems before the bank does.

Also, know your business plan and what your five or 10 largest customers are doing. If you learn that of your two lines of business, only one is profitable, you should shift your resources to the more profitable of the two.

Companies can get weighed down by the history of their operations and not take a critical look at their business model, business plan, customer array and pricing policies. Examine your business model as if you were starting fresh.

There is no shortage of examples of businesses that hypothetically have grown but their profits have not gone up proportionally. Increasing sales doesn’t necessarily mean higher profits because of other factors, such as margins and collectability issues. You have to scrub the numbers to see what you are doing right. You may have to cut back sales to better serve customers at higher margins in order to make more money.

How can banks and borrowers each adjust during this period of transition?

You have to assume that we are going to come out of this Great Recession and that the economy will be back in growth mode. This takes patience and understanding from both lenders and borrowers.

Lenders want to make loans. They need to lend money because that is how they get a return on the capital that has been invested. And borrowers need to be granted loans in order to make that happen.

Kenneth R. Cookson is an attorney at Kegler, Brown, Hill & Ritter. Reach him at (614) 462-5445 or

Insights Legal Affairs is brought to you by Kegler, Brown, Hill & Ritter Co., LPA