The economy is heating up across many sectors. While economic improvement provides many opportunities, companies are facing the increasing challenge of hiring and retaining employees.

“People are the driving force behind the success of every business,” says Scott Anderson, a senior audit manager at Sensiba San Filippo, LLP. “Business owners who understand the immense value of their people and take action to protect and motivate their employees can see tremendous effects on their bottom line.”

Smart Business spoke with Anderson about the difficulties employers face motivating their work force and how to gain a competitive edge in retaining the best employees.

Why is employee retention important to leading businesses?

People are the foundation of successful businesses, and most business owners, especially those who have lost top talent, would agree. While it may be difficult to put a price tag on the value of each employee, every employee’s impact shows up — for better or for worse — in the bottom line. Economists have estimated the cost of replacing an employee at $17,000 to $31,000. For employees making more than $60,000, the cost is $38,000 or more.

The effects of employee retention and loss will only become clearer as we move out of the recession. According to the U.S. Bureau of Labor Statistics, more employees are quitting jobs to take new positions. People generally hunkered down during the recession and put career goals on hold, but now some industries are showing significant movement already.

How does employee retention relate to risk?

Costs associated with hiring and training are just one impact of employee loss. An employee may have had access to how much customers were paying for services, or insight into trade secrets or key intellectual property. That information loss could cause significant damage if it goes to a competitor regardless of whether patents or nondisclosure agreements are in place. There is also reputational risk, as departed employees won’t censor themselves. Negative comments can spread fast regardless of whether they are true or not.

What are successful companies doing to motivate and retain employees?

Companies are finding new ways to keep top talent. Successful companies find a ‘recipe’ of benefits that makes employees feel the company can help them achieve their personal goals. For some, traditional motivators such as time off, health care benefits and flexibility of scheduling aren’t enough.

Small investments can have disproportionate effects on employees. Don’t underestimate the value of recognition. Creating a leadership  award and nominating employees for outside business achievement awards improve morale. Wellness programs and community involvement opportunities also differentiate a work environment and build camaraderie.

For others, motivating factors include taking on new work or having increased responsibility. Presenting opportunities for professional advancement and intellectual expansion are overlooked factors to employee retention. An employee should have little difficulty understanding his or her career achievement path. Beyond just talking about it, the path should be written down and communicated. If employees can see how their career will proceed in the next 10 years, their vision for the future will involve a long-term relationship.

Mentoring programs can also improve career development opportunities. Allow employees to select their own mentors who are not far above the employee’s current level. Having a mentor the employee connects with, who is two to three years further in their career track, makes it more likely that candid, meaningful conversations will take place.

How can a business cultivate a culture that leads to happy, motivated employees?

One of the most important factors in forging loyalty is eliminating uncertainty, as it is a driving force that makes people look elsewhere. Unable to visualize a long-term relationship with the company, employees grow insecure.

Communication is also critical. Business owners and company leaders can dispel fears with proactive communication about the company and employees’ roles. Many successful businesses share successes of the organization, emphasizing the connection between employee success and the company’s success.

For smaller businesses, simple face-to-face interaction goes a long way toward showing employees their effort is valued.

Are employees still motivated by performance-based compensation incentives?

Yes. However, there are some common pitfalls that can derail a well-intentioned incentive program. One of the common misperceptions is that an innovative plan is a complex plan. It is actually quite the opposite. The simpler the compensation plan the more likely that it will be effective. The rule of thumb is it takes a beer to discuss the plan and the details can be written down on a bar napkin.

The value of a performance-based compensation plan is directly related to its success. At least 20 percent of the compensation plan should be incentive based and should fit into a picture of the overall health of the business that the employee clearly understands. The progress toward receiving compensation must be communicated frequently. It should be automated, predictable and not dependent on complex spreadsheet calculations.

How can businesses evaluate their employee retention efforts?

Business owners should research how their compensation and other benefits stack up to the competition. If they are lacking, find a good partner who knows the ins and outs of employee motivation, incentives and retention. On the other hand, if business owners find that their plan is superior to the competition, don’t hesitate to tell employees about the benefits of working for your company. Show your employees that you’ve done your homework and highlight the opportunities and benefits provided by your organization.

Scott Anderson is a senior audit manager at Sensiba San Filippo, LLP. Reach him at (408) 286-7780 or

Insights Accounting is brought to you by Sensiba San Filippo

Published in Northern California

Intellectual property (IP) is an area regularly overlooked; however, this is a pivotal area of law, especially for entrepreneurs and mid-size businesses.

“We often get calls once a client has already landed in some sort of IP trouble, but many of these issues could have been averted through some simple diligence early on,” says Salil Bali, an Intellectual Property Litigator at Stradling Yocca Carlson & Rauth.

Bali says many people are overwhelmed by the topic and might think it to be in the purview of larger companies.

“Surprisingly, for small businesses, this is an area we have seen affect them the most, and often this impact is significant,” he says.

Smart Business spoke with Bali about the importance of protecting your intellectual property, regardless of the size of your company.

What types of businesses are most at risk when it comes to IP?

Most people, when they think about IP, assume it pertains just to tech-based innovations. However, at some level, every company has IP rights to protect. In today’s world, fewer companies have tangible assets such as equipment, manufacturing facilities or real estate. Instead, the vast majority of companies today have most of their assets based on IP rights. This includes the ‘mom-and-pop’ yoga studio that needs to protect its name, all the way to the biotech company that has inventions to protect. No matter what type or size company you have, there are aspects of IP law that touch your company and those rights need to be protected.

What are some common intellectual property issues entrepreneurs should recognize?

The four main areas of IP affecting business today are trademarks, copyrights, patents and trade secrets. Companies need to be aware of all four areas and how to protect themselves with regard to each.

Trademark law deals with the protection of a word, name, symbol or device used to indicate the source of the goods or services. The purpose is to distinguish from other similar goods or services and prevent public confusion. When determining your brand or company name, you should perform trademark clearance to ensure you don’t infringe on pre-existing marks and that your desired mark is strong and protectable. Discussing such issues with a trademark attorney early on can minimize exposure and create IP assets for a company right out of the gate.

Copyright law deals with the protection and permissible uses of original works of authorship, including photographs, videos and written documents. These issues often arise with hastily launched websites, when companies start loading copyrighted images or text without first getting permission or the appropriate licenses. This could lead to cease-and-desist notices and claims for damages. Similar issues can arise with the use of personal likenesses, especially those of celebrities.

Patent law grants an inventor the right to exclude others from making, using or selling his or her invention. If you have an innovative idea, it’s important to talk with an attorney to determine what is patentable and whether or not your idea infringes on other patents. Doing this early diligence can protect your idea from being abandoned to the public domain or help you sidestep and minimize potential litigation exposure.

As far as trade secrets, companies need to be mindful about how they manage information to make sure secrets stay protected. Early-stage companies often aren’t careful about employment contracts and what information is being divulged to whom. This lack of discipline can adversely affect the company’s ability to claim trade secret protection. If you share sensitive information without outlining the recipient’s duties to hold it in confidence, you can lose the ability to protect your trade secrets.

What are the potential consequences of ignoring intellectual property issues?

The risk of not protecting your mark is that someone else assumes a similar name and thus limits or destroys the value of your brand. Though there may still be recourse, it becomes an uphill battle. An infringement lawsuit by a trademark holder for your use of a confusingly similar mark could cost your company its brand and/or logo, the goodwill associated with them and subject you to potential damages.

The risk with copyright infringement is financial penalties. Unlike patent and trademark laws, there are express damages written into the copyright statute that can be considerable.

The consequence for infringing on a patent is litigation, which may result in an injunction preventing further sales or use of the infringing product. Damages and costs in such cases can quickly add up. Conversely, if you fail to seek patent protection for your innovation, you could permanently lose your ability to protect your invention. When you have a new idea, there are key timelines you should be aware of that can be impacted by public disclosure and sale. You must act quickly to secure your idea or you could lose your rights, even if your invention is otherwise patentable.

With trade secrets, it’s simple: If you don’t protect them, you lose them. As soon as a secret enters the public domain, it’s gone.

How could these problems be avoided?

Often, talking with someone who is knowledgeable can help you understand how to protect yourself from infringement. The costs associated with protecting yourself are proportionately low and can have a big impact on your company’s valuation when you’re looking for funding. The stronger your IP portfolio is, the stronger your company is. However, if these issues are ignored, it can become a costly distraction for you and your company. Taking steps early on to make sure your IP house is in order can pay dividends.

Salil Bali is an Intellectual Property Litigator at Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4278 or

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

Published in Orange County

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.

Member FDIC

Paul Herman is the small business lending manager at  California Bank & Trust. Reach him at

Insights Banking & Finance is brought to you by California Bank & Trust

Published in Los Angeles

China’s economy is growing at a fast pace and its government has worked to attract foreign companies, which is opening opportunities for them to get involved in the country’s market.

“There is a demand and need by so many Chinese companies that have capital and want to expand their business but don’t have the technology a lot of U.S. companies have,” says Julia Zhu, senior counsel in Dykema Gossett LLP’s corporate finance group.

There are lots of matching opportunities for U.S. companies that have great technology but don’t have a market or the capital to expand their business, which she says creates a good environment for U.S. companies.

Smart Business spoke with Zhu about how to enter the Chinese market.

What do business leaders need to know about doing business in and with China?

First, it’s about the business structure you want to set up. Choosing a physical presence in the country or a procurement strategy depends on whether the company wants to produce goods or services in China for the domestic market. If the foreign company’s focus is on exporting, it might consider using China as a manufacturing base for finished goods or do production outsourcing, which means a straightforward procurement strategy. This can be good for foreign businesses new to Chinese markets while keeping the option open to setting up local production later.

What are some options in regard to business strategy and structure?

If the foreign business wants to set up a physical presence in China, two of the most popular choices are wholly foreign-owned enterprises and joint ventures.

Having a wholly foreign-owned enterprise means you have the sole responsibility for profits and losses. It takes less time to establish because the foreign company doesn’t need to find a local partner or enter into a joint venture contract. Also, this structure gives the foreign owner greater control over company operations, training and recruitment of employees, and better protection of intellectual properties.

With joint ventures, there are two types — an equity joint venture is typically used for long-term projects, and a cooperative joint venture is better suited for short-term projects.

Generally, joint ventures are preferred when a foreign company wants to enter industries for which the Chinese government has restrictions on investment. The government has a list of all the industries in which companies can invest only through joint venture structure.

A joint venture can also be preferred when a company needs a partner to share its capital burden. Chinese companies can have certain technological or distribution advantages, making a joint venture an attractive choice. Successful joint ventures are imbued with clear rules and clear strategy between partners.

There are some disadvantages, such as statutory features where Chinese law requires unanimous approval from a company’s board of directors for major issues, including capital changes and mergers and acquisitions.

How should location factor into a company’s strategy?

Location can be very critical to the success of foreign investors. They need to look at the nature of their business, as well as incentives offered by the local government, their logistical needs, import and export requirements, and government inspections and restrictions.

The theme now is to go west. The Chinese government has implemented tax policies as a strategy to encourage investors to go west. In some cases, qualified foreign investors can have tax holidays.

When people talk about investing in China, they often talk about first-tier cities, such as Beijing, Shanghai and Guangzhou. However, investors should consider second-tier cities such as Nanjing, Dalian, Wuhan and Chong-qing that have cheaper labor costs, greater government support and less competition.

What protections exist for intellectual property?

Intellectual property (IP) is a big concern for foreign investors. The government has taken measures to improve the IP environment. Although China’s IP environment is risky, many foreign businesses have found a way to work in it. The key is to take a proactive, strategic approach rather than a purely legal approach. Businesses should engage the legal system while reducing dependence on it. While traditional legal methods of protecting IP may not always be effective, copyrights, trademarks and patents should still be registered as an important starting point.

Some companies avoid manufacturing innovative, high-margin products in China and instead focus on mature commodity products with lower margins. Others might develop products in countries with better IP protection and bring them to China to guard certain proprietary details. You can also protect yourself with thorough investigation. Watch markets for products like yours, educate suppliers and employees regarding enforcement, and execute agreements to retain key employees.

How else does the Chinese legal system affect business?

Legal compliance in China is different than in the U.S., where one has the narrow task of following existing laws. In China, legal compliance should not be viewed as a standalone legal requirement removed from corporate activities and results, but as a key driver of project completion and investment returns. For business planning, it’s helpful to divide those compliance issues into several categories, such as actions that cause a project not to be approved; internal operating issues, such as those pertaining to labor; external laws, such as bribery and breach of contract; and investment exit issues. By taking a broad view of compliance and conceptualizing compliance issues as a vital part of business performance, it is possible to formulate a compliance strategy that substantially increases the likelihood of success of foreign business.

Julia Zhu is senior counsel in the corporate finance group at Dykema Gossett LLP. Reach her at (213) 457-1830 or

Insights Legal Affairs is brought to you by Dykema Gossett LLP

Published in Los Angeles

When a business owner wants to relocate, the task can seem daunting. However, by exploring some key considerations, you can prioritize the move and find a location that works well for your present company and your future growth.

One such location — Irving, Texas — is in the Dallas-Fort Worth Metroplex. Irving has more than 8,500 businesses that are already operating in the region, including the headquarters of five Fortune 500 companies.

“You need a value-driven proposition,” says Carter Holston, general manager of Real Estate NEC Corporation of America. “You have to have a good location. You have to have a great office space. You have to have access to your employees and pay the right amount of tax, both school and other. All that goes into the mix when you make the decision.”

Smart Business spoke with Holston about what employers need to consider for relocation and why the Greater Irving-Las Colinas area fits that bill.

If a business is thinking of relocating to a new city, what does it need to take into consideration and how does that relate to the Irving area?

There are three components that any company needs to consider:

  • The work force

  • How you access the work force, the accessibility to the region, and how you move about via the roadways and mass transit

  • The business-friendly environment

Irving is in the center of the Dallas-Fort Worth Metroplex, so access to an available work force is not a problem. The area is adjacent to a major airport — the Dallas/Fort Worth International Airport — allowing you to get your people in and out of the city in an easy and efficient manner.

The Irving area also has accessibility from the standpoint of mass transit, which is a game changer in business today. The new work force is more mobile and prefers living, working and playing in the same area instead of driving long distances to and from work.

Then there’s the business-friendly environment, which is probably one of the most important factors. Companies need to be in cities that believe in business, that understand the revenue they derive from taxes and what it means to have their citizens employed.

What’s the current state of the commercial real estate market in the Irving area?

Commercial real estate for Irving is on the rise, generally, and Texas, itself, is a good market for companies and corporations to consider relocating to.

Irving has more than 30 million square feet of commercial office space and is the third-largest submarket in the Dallas-Fort Worth Metroplex. Typically, there is about a 20 percent vacancy rate, but that has been as high as 25 percent, so Irving is a value-driven market.

With 30 million square feet, there are some large blocks of space that are available at affordable rates. Most companies seem to be taken aback at the leasing rates in Dallas compared to other regions.

Irving also has another game changer that just opened in July — a light rail system that runs through the central urban center. That mass transit will affect commercial real estate in a positive way in Irving.

What else makes the North Texas region so attractive?

Texas, in general, and the Dallas region, in particular, are ‘can do’ regions. There’s really no reason for Dallas to be on the map. There’s no geographic reason for Dallas to exist, no great river system. However, the people who settled here on the prairie a long time ago made it work, and that theme and attitude have carried through the years. Even when the oil business was not good, Dallas found a way to diversify and found other industries to attract, such as technology, oil and gas, banking and insurance. Just about every sector of the economy is represented in North Texas, and the Dallas area specifically.

This ‘can do’ attitude holds true for the area’s longevity and its future, which is based on finding a way to get things done.

How can an employer find things such as tax breaks and incentives when moving into a new area?

First, look at what is important to you. There are a variety of tools that each region and city has to offer. The tax breaks, in and of themselves, shouldn’t make the decision for you. The decision to relocate should be based on where you can get a fair deal — where the value deal is found.

That said, for new construction, there are many incentives available, varying greatly by city. You should have a good broker representing you who has access to incentives and knows what has been granted in the past. You should be represented well and compare with past incentives, but don’t let incentives be the only thing that makes up your mind.

The Greater Irving-Las Colinas area is certainly very affordable with available space and incentives, but it’s also a great product in a business-friendly area.

Carter Holston is general manager of Real Estate NEC Corporation of America, where he oversees all domestic commercial real estate functions and is responsible for more than 1 million square feet of leased and owned facilities. In addition, Holston serves as a consultant to the Irving Economic Development Partnership at the Greater Irving-Las Colinas Chamber of Commerce. Reach him at (214) 262-2190 or

Visit the Greater Irving-Las Colinas Chamber of Commerce at

Insights Economic Development is brought to you by Greater Irving-Las Colinas Chamber of Commerce

Published in Los Angeles

Employers — and subsequently, their employees — are becoming more savvy about the decisions involved in choosing and administering a health plan, often a business’s second- or third-biggest cost of operations. Just as safety initiatives can help reduce property and casualty insurance premiums, health insurance savings can often be achieved through self funding, says Mike Debo, senior sales and renewal executive at HealthLink.

“By instituting wellness programs and encouraging routine physicals and post-condition care for not only employees but for covered dependents, employers can reduce premium and claims costs while increasing productivity,” Debo says. “Instituting wellness programs, encouraging routine physicals and promoting post-condition care are especially beneficial to self-funded groups as they see the savings in the form of fewer claims spent, which can reduce reinsurance costs.”

Smart Business spoke with Debo about how increased involvement on the part of employers and employees can lead to lower health plan costs.

What is driving employers to be more involved with their health plans?

For many employers, the No. 1 reason they are becoming more involved is that they have no other option. They may have already maxed out what they can do from a plan design perspective with greater participant out-of-pocket costs. In addition, fully insured employers are constantly getting rate increases, but over the years, often no one has been able to fully explain the increases.

What are some tools an involved and educated employer can use to lower health costs?

An employer’s decisions are only as good as its information. That is why many business owners move into self-funding, where there is greater reporting about their group and its claims, whether medical or pharmacological.

One of the first tools businesses use is to have participant biometric testing, which provides the employer with information on how many people in the group have high cholesterol, hypertension, weight or smoking issues. From that — combined with reporting and claims — employers can create wellness programs and condition management programs. Wellness programs eventually save money from a claims perspective, but it might take a year or two to absorb the initial cost of testing.

With a year’s worth of information from claims and wellness programs, businesses can begin to change their plan design to address health conditions, utilization patterns or provide unique coverage for their plan participants. For instance, a business may find its participants are frequently visiting chiropractors because of their job type. With that information, they can look at not only how many visits they are allowing for chiropractors and the cost but also institute a condition management program strictly for back injury care.

Then, they can look at pharmacy claims. Are participants using generics as often as they can, brand names as necessary or mail order whenever possible? What does the employer need to do regarding the pharmacy benefit to not only ensure that people get the drugs they need but also to make it cost effective for the group?

By changing the plan design and addressing the specific needs of a group, employers often find they don’t need a particular program, such as condition management or a 24-hour nurse line, further cutting costs.

How can employers overcome initial resistance to wellness programs and other initiatives?

Most people aren’t going to participate in biometric testing, a smoking cessation program, a weight loss program or a condition management program unless there are cost differentials to participants in the form of incentives or disincentives. Plan participants often think such programs are an invasion of privacy or that they require too much of a time commitment, but when there is a 10 to 30 percent difference in premium costs, they get involved.

How can employers communicate to employees the true costs of health care?

One of the easiest ways is to use a plan with no co-pays, where everything goes toward deductible/coinsurance, so that participants understand how getting an X-ray at an outpatient facility versus a hospital can mean the difference between a bill of $700 or one of $1,800.

Reporting is extremely important because it provides the knowledge to make wise decisions. Communication is equally important, whether via traditional posters and payroll stuffers or new technology smartphones, emails and blast texting.

To be effective, the communication must address how to get the most out of plan benefits and programs while avoiding unnecessary costs to the participant and the group.

How do self-funded plans give employers so much more control of their health program?

Employers have full control, outside of federal mandates, to do what is best for plan participants and plan costs. For example, if an employer has a population with an average age of 45 and people taking off work for elderly parents going into nursing homes or going to the doctor frequently, the employer can bring in a vendor to work with employees on how to make decisions about their parents. This takes pressure off employees. They show up to work more regularly and are more committed to the company because of the service their employer provided.

With self-funding, it’s at least a three-year commitment of time and effort to cut costs and provide better benefits for employees. The employer has to sit down on a quarterly to semi-annual basis to go through reports and have someone scrutinizing claims. Employers with healthy groups may stay fully insured because they think there is no risk involved, but the risk is that they pay $2 million for something that costs $1.5 million. With self funding, employers have a program that they are in charge of, a program better suited for them and for their plan participants.

Mike Debo is a senior sales and renewal executive at HealthLink. Reach him at (866) 643-7094, ext. 1, or

Insights Health Care is brought to you by HealthLink®

Published in Chicago

Years ago, conversations about keeping employees safe meant providing them with technical advice about the use of hard hats, goggles and other safety equipment, or training in safe lifting techniques, parking lot safety and sexual harassment policies.

“Today, physical safety ranks at the top the list of required training in most companies as our workplaces become ever more dangerous,” says Laurie Bradley, president of ASG Renaissance and Blue Force Services.

Recent active shooter events in Colorado, Wisconsin and Alabama, for example, bring attention to the complexities of physical safety.

“This leads us to the question of whether or not we are doing all that is possible to mitigate unwanted physical intrusion into our workspace,” she says.

Smart Business spoke with Bradley about how a company can protect itself against physical threats.

How does a company establish a physical safety program?

Safety programs are not one size fits all. They need to be tailored to reflect the presumed risks of a business in a given industry. For example, banks and financial institutions need a different safety program than a car rental business. However, generically, the process is typically initiated by performing a risk assessment. This entails mapping the physical facility and identifying the areas and entry points that may need different rules of access.

As you map your facility, determine and highlight the exit and escape routes, and define areas that would be sensitive to catastrophes such as fires, floods, earthquakes, bombings and utility failure. Review your procedure for the identification of authorized personnel and critique the systems used to do so, such as key card readers, biometric devices and cameras, to determine the possible vulnerabilities.

Consider the environment around your business, local crime rates, the interior and exterior of your building, and the perimeter of your space where public access is permitted. Develop a checklist as you examine poorly lit areas, trash areas that may present arson opportunities, the condition of walls and fences, and what tools or supplies that, left unattended, could be used to access the facility.

Who should be involved in the assessment?

Internal personnel, such as your security staff, may be utilized to determine and detail a current state report. Third-party security experts are often used to identify weakness or vulnerability to your operation and may be engaged to attempt to breach the security to illuminate risk areas.

Generally, annual third-party audits with corresponding training programs help ensure physical safety programs reflect the risks brought on because of current business and political environments. Security consultants can also make certain you are aware of the latest technology developments that may enhance physical security.

Companies wanting to launch and monitor a more robust program can access information through the Federal Emergency Management Agency. Additionally, the Private Sector Preparedness Council has select program standards leading to certification. The process provides a framework for businesses to assess whether they comply with voluntary preparedness standards. Many of the program’s components align with the Support Anti-Terrorism by Fostering Effective Technologies Act, which mitigates legal and liability concerns for users of anti-terrorist technologies and products.

Can we ever really be safe?

No system or security program can guarantee absolute safety. Consider that HVAC systems are not normally equipped with detection devices and can be easily accessed — a fast way to hinder a worksite would be through the air ventilation system. Preparedness is the best defense and mitigation tactic. Focus on removing the temptation to commit a crime and monitor, enforce, educate and train your staff in the procedures necessary to reduce the possibility of a physical threat.

What if a business doesn’t have a robust physical safety program already in place?

Begin the discussion on safety during general staff meetings to help raise awareness within your employee population. Walk your employees through situations and the best responses to them, such as what to do when gunshots are fired, who should call 911, what the alternate routes out of the office are, etc.

Establish a crisis management team to involve key business leaders in evaluating risk, designing and conducting on-site training, coordinating public communications, assuming command roles in an emergency and providing assistance post incident. Security programs need to be holistic and embedded in all operations of a company, not assigned to a security department.

Safety and security should begin in an employee onboarding process and carry through the lifecycle of employment as part of the corporate identity. When safety and security are closely aligned with your corporate identity, it removes some of the anxiety that can be associated with safety training. Your goal is to have informed, alert and confident employees who willingly participate in the program.

What liability might a company face for not having procedures to deal with a physical threat?

Following the Sept. 11 terrorist attacks, property managers, security firms and security and safety device manufacturers all faced lawsuits. However, there are no defining standards to evaluate disaster recovery and business continuity programs.

In a litigious environment, we create an economic disincentive to expand safety- and security-focused services. The SAFETY Act was passed to give some protection and guidelines to mitigate these concerns for providers of products or services that are used to detect, identify and defend against terrorism. Companies developing security programs should consider adopting products that follow these voluntary guidelines, demonstrating ‘best efforts’ to implement a safety program that represents ‘best in class’ as defined by the act.

Laurie Bradley is president of ASG Renaissance and Blue Force Services. Reach her at (248) 477-5321 or

Insights Staffing is brought to you by ASG Renaissance

Published in Detroit

As the country’s population ages, a growing number of people will, unfortunately, suffer from diminished capacity, which can arise from conditions such as Alzheimer’s disease and dementia. “This is occurring more as businessmen and women work into their later years, and they become more susceptible to these conditions that affect their ability to make business decisions,” says Suzanne Fanning, an attorney with Garan Lucow Miller PC and co-chair of the Washtenaw County Bar Association Probate Section.

If someone with diminished capacity to make decisions enters into a transaction, that decision may be later subject to challenge in court.

“If it is established that the person did not have the requisite legal capacity to enter into the contract, the court may set the contract aside, to the detriment of the other party that entered into the contract,” she says.

Smart Business spoke with Fanning about how to take the legal precautions necessary to protect your business when concerns arise about another party’s possible diminished capacity.

What is diminished capacity, and who does it affect?

Diminished capacity is essentially an impairment of daily cognitive functioning, which can impact memory, reasoning, language and insights, all of which are skills critical to good business decision making. While the majority of businesspeople will not suffer from diminished capacity, as the population ages, there is a greater likelihood that it will become an issue.

Diminished capacity can also impact younger businesspeople who have been injured or who suffer from serious illness. This could be temporary, such as when medical treatments impair mental capacity, or permanent, such as when a person is in a serious accident.

What are the signs of diminished capacity?

There are no standard set of criteria, but there are red flags to consider if you are engaged in business transactions with someone who appears to have diminished capacity. These can include memory loss or forgetfulness, problems with the ability to communicate, loss of mental acuity, calculation problems, diminished comprehension, disorientation, inflexibility during negotiations, susceptibility to manipulation or even fraud by third parties.

Are there different standards of capacity for different business transactions?

Yes. Legal capacity has different legal definitions depending on the transaction and the applicable case law and statutes in the state in which you are operating. In Michigan, for example, the legal standard for the capacity to contract is whether the person in question possesses sufficient mental capacity to reasonably understand the nature and effect of the contract.

The more complicated the contract, the higher the level of understanding that is necessary to have the legal capacity to make that contract.  In a real estate transaction, such as signing a deed, the standard is whether a person has sufficient mental capacity to understand the business in which he or she is engaged, to know and understand the extent of the value of the property and how to dispose of it.

It is important that businesspeople be aware that a transaction can be set aside by a court if the other party is later found to have lacked the requisite legal capacity at the time the transaction was undertaken. Therefore, it is important to take appropriate steps to protect yourself and your business when concerns arise that the other party may lack the legal capacity to enter into a transaction.

How can you protect your business in the event that your business partner is showing signs of diminished capacity?

One way to address this concern is to create a durable power of attorney, in which you and your partner name each other as the agent to transact business in the event the other suffers from a diminished capacity. You can also name a trusted employee or adviser to this position.

Having a durable power of attorney will also prevent a spouse or family member of the incapacitated person from gaining the authority to transact business matters on that person’s behalf. This is especially important when those family members have little or no experience in business.

What can be done if a client or third party to a transaction appears to have diminished capacity?

One option is to ask for a capacity evaluation by a doctor to ensure that the person has the capacity to enter into that particular transaction. Of course, this topic must be approached with great care. Another option is to make the transaction contingent on a court guardianship or conservatorship in which the court will grant authority to a third party to act on the person’s behalf.

For example, while a person with diminished capacity might not be capable of signing a deed necessary to a business deal, his or her court-appointed guardian or conservator could be granted authority to sign the deed on behalf of that person and proceed with the transaction.

Clearly, such a scenario can be extremely difficult. It may be a client with whom you have worked over many years. It can be difficult to extricate yourself from the relationship, but it may be necessary to protect yourself legally because these transactions can be set aside. It may be a matter of approaching the client’s partner or spouse, explaining that you are having concerns and bringing in a third party to make sure the transaction is protected.


Suzanne Fanning is an attorney with Garan Lucow Miller PC and concentrates her practice in probate and trust litigation and planning.  She is co-chair of the Washtenaw County Bar Association Probate Section. Reach her at (734) 930-5600 or

Insights Legal Affairs is brought to you by Garan Lucow Miller PC

Published in Detroit

Many businesses, at one time or another, have cash flow deficiencies. These can stem from a large account falling behind in payments to a seasonal increase/decrease in sales, among other reasons.

Even if a company manages its cash flow appropriately today, no one can predict the circumstances the company may find itself in a few months from now.  The best thing to do is to conserve capital for these unexpected events, but the second best thing is to obtain working capital line of credit.

“A company does not need to anticipate cash flow issues to apply for a line of credit,” says Al DeFlaviis, chief lending officer at First State Bank. “Instead, think of it as an insurance policy that doesn’t need to be paid until you need it. But the time to talk to your bank about a line of credit is before you experience a working capital deficiency.”

A line of credit gives a company the opportunity to borrow on a short-term basis for payroll, to take advantage of inventory discounts and to pay other fixed overhead expenses that are due prior to accounts receivable collections.

Smart Business spoke with DeFlaviis about how to use a line of credit to meet your company’s needs for working capital.

How does a line of credit work?

Interest is charged on the outstanding balance, not on the unused portion of the line. Interest rates are almost always variable and are tied to an index such as the prime rate or LIBOR indices. Once you have established a line of credit, your company can usually advance and repay the line as often as necessary. Lines of credit are usually renewed annually at a time when the your company’s annual financial statements have been completed.

How can a business determine what its line of credit should be?

To begin the process, you should first meet with your financial adviser or CPA before arranging a meeting with your banker. Preparing beforehand and gathering your information will allow the banker to better understand your business and determine your capital needs. If those needs are short term, a line of credit may be the appropriate solution, as a line of credit should not be any more than an amount that can be repaid through revenue production within 30 to 90 days.

However, if those needs are longer term, another type of loan may provide a better solution. Term loans are used primarily for long-term capital expenditures such as purchasing equipment, buildings, building improvements, etc., and are made for periods of three to 10 years.

How do banks determine what credit line they’re willing to extend?

With a line of credit, the way funds are used is left to the discretion of the borrower, so the bank carries more risk. As a result, a company must have a good business credit rating and a solid company financial history; it is unlikely a lender will approve lines of credit for start-ups or businesses without a track record of financial success.

Lenders generally also require collateral to secure a line of credit, which is nearly always asset-based, with equipment and facilities backing the line. However, credit lines can also be secured by receivables, inventory and by the owner’s personal assets, and it is not unusual for the bank to require a business owner to personally guarantee repayment of the line of credit.

When entering credit discussions with your bank, be as open as possible about the financial picture of your company. Be prepared to provide financial documentation including profit and loss statements, balance sheets and company tax returns.

Having an inside look at the business not only provides your banker with the confidence to recommend the loan package, but he or she is more likely to lobby on your behalf when the line comes up for approval.

How can a business identify a suitable bank to partner with?

Ultimately, you want to be able to lean on your banking relationship to help your business in good times and in bad, so begin by examining your existing relationship. Has your bank been responsive to your needs, acting not just as a lender but as a partner? If not, it may be time to find another bank.

Look for a banking partner that is the right size and complexity for your needs. For example, a national bank may use an automated scoring system to determine credit. Regional banks are often compartmentalized by market share and industry, and when a business changes or evolves, a different banker is assigned.

Community banks, on the other hand, usually have one person, a commercial relationship manager, who coordinates products and services. That person will understand the needs of your business and create a package of products and services that meets those needs.

Select a banker who understands your industry, as well as your marketplace. You will not only benefit from a line of credit but from your banker’s experience, industry insight and solutions to your company’s financing needs.

Alfred DeFlaviis is chief lending officer and senior vice president of First State Bank. Reach him at (586) 445-6615 or

Insights Banking & Finance is brought to you by First State Bank

Published in Detroit
Saturday, 01 September 2012 13:40

Five things to know about executive compensation

Well-drafted executive compensation programs aren’t just used to recruit and retain top-level leadership to your company. Public and private companies can tailor executive pay packages to encourage executives to achieve certain goals.

“We can put strings on short-term and long-term benefits to drive executive behavior, and that’s one of the things that’s really coming to the forefront now,” says Ted R. Ginsburg, CPA, JD, a principal with Skoda Minotti.

Smart Business spoke with Ginsburg about leveraging executive compensation.

What are the key components of an executive compensation program?

In general, an executive compensation program consists of four key parts. These are base pay, annual bonus, long-term incentives and perquisites, which could include car allowances, country club memberships, executive physical programs, security services and use of the company airplane. Because of recent economic events and more scrutiny by shareholders, perks are not such a big part of the package anymore; employers are providing higher base pay and instructing executives to acquire the perks on their own.

An optional component is a sign-on and/or retention bonus. A sign-on bonus is appropriate when trying to hire an executive from another company who would lose a bonus if he or she left. The retention bonus — a promise to stay through a certain date or event in order to receive a bonus — is used when you have incurred hard times and worry the executive is going to leave.

How does executive compensation differ in a public and private company?

There are some significant differences, and oftentimes, private companies are at an inherent disadvantage. A public company normally provides a long-term incentive using either a stock option or restricted stock. A stock option allows executives to purchase shares at a stated price while he or she remains employed; a restricted stock program gives executives a share of stock outright after meeting certain targets. Stock doesn’t drain cash flow, often doesn’t immediately reduce earnings and can have favorable tax treatment for the company and the recipient. In a publicly traded company setting, the recipient can usually turn around and resell the shares on the open market immediately. The total pay package of chief executives of major public Cleveland corporations may comprise 60 to 70 percent in company shares.

Many executives in private companies don’t want to receive stock unless they already own a substantial company stake. Executives would need to pay income tax on the stock and can’t sell part of the shares to cover the amount. Also, executives usually must sell the stock back when they leave in exchange for a cash payment made over time. Furthermore, private company owners might not share financial information with executives so the value of the ownership interest is unclear.

What can a private company offer someone from a public company instead of stock options?

Some private companies award only base pay and an annual bonus, but attracting a senior-level executive from a public company is difficult without a long-term incentive program. There are programs that provide a cash payment based on company performance and the current company value over a number of years, making executives feel as if money has been put aside for their future. Two types of long-term incentive programs are:

  • Phantom stock — an owner gives executives a check representing the full value of a number of shares of stock when they leave.

  • Stock appreciation rights — an owner gives executives a check when they leave, which equals the number of rights given to them multiplied by the difference between the value of the stock when it was awarded and when they leave. Mimicking a stock option, it rewards executives for increasing the value of the company.

These programs often have a vesting schedule stating an executive leaving before a certain time does not receive the entire benefit.

Another methodology is a change of control payment, where an owner planning to sell or transfer the business gives the executive a check based on the sale price or value of the company at the time ownership is transferred.

Some larger private companies with the necessary liquidity also use long-term cash incentive programs. Over a period of time, if revenue is up or costs are down, cash is put aside for when the executive leaves.

Why do long-term incentive programs help an employer?

These programs act as retention devices. They focus employees on long-term performance rather than maximizing annual bonuses and they don’t drain cash immediately as they are deferred payment obligations.

Long-term incentive programs are familiar to public company executives. If a private business owner offers to pay to replace the value of stock options lost because the executive left for a private company, the recruited public executive might ask what he or she is going to get for subsequent years.

Finally, they allow for a trial period, giving  the option of cutting him or her loose early.

Why are employers moving away from discretionary annual bonuses?

With discretionary bonuses, private company executives walk away without knowing what they did to earn it and how to repeat it. Many businesses now give bonuses based on company performance.

Well-drafted programs have easily measured goals that drive behavior and set annual priorities. Long-term, multiyear program goals relate to financial performance and other forward-thinking items, such as establishing a new geographic market or bringing a certain number of products to market. If the goals aren’t met but executives put in the effort, ownership can always give discretionary bonuses. This type of program helps employers manage the executive’s expectations and creates transparent working conditions.


Ted R. Ginsburg, CPA, JD, is a principal with Skoda Minotti. Reach him at (440) 449-6800 or

Insights Accounting & Consulting is brought to you by Skoda Minotti

Published in Cleveland