Although Congress passed the last-minute fiscal cliff tax deal in a seemingly haphazard way, many changes in the American Taxpayer Relief Act of 2012 will have both positive and negative impacts on executives, says Elizabeth Bunk, partner-in-charge of Houston Tax and Strategic Business Services at Weaver.
“Unlike the Congressional change two years ago, the American Taxpayer Relief Act of 2012 provides permanent changes to certain tax rates and exemption levels,” she says. “Therefore, we won’t be in the same situation again two years from now because many of these tax changes won’t expire. This will allow executives to plan for their future taxes with greater confidence.”
Smart Business spoke with Bunk about what executives need to know about their tax considerations for 2013.
What is the new maximum rate?
Congress added a top income tax rate of 39.6 percent for those with an annual income of more than $400,000 for single filers and more than $450,000 for joint filers. They also kept the same rates of 10, 15, 25, 28, 33 and 35 percent that were available in prior years. Therefore, executives earning above the $400,000 or $450,000 threshold will pay an additional 4.6 percent on the portion of their income that exceeds the highest bracket limit. While it was widely anticipated that income tax rates on high-income earners would increase in 2013, executives can at least be pleased that the final version of the act doubled the threshold amounts at which the 39.6 percent rate begins from the often-mentioned $200,000 and $250,000 threshold amounts.
How are capital gains and dividend rates handled?
Following the same threshold — $400,000 and $450,000 — the capital gains and dividend rates permanently increased from 15 to 20 percent. It is also important to note that higher income taxpayers will get hit by the new 3.8 percent surtax on investment income imposed by the Patient Protection and Affordable Care Act. This surtax, which applies at an income threshold of more than $200,000 for single filers and more than $250,000 for joint filers, will bring the final tax rate on capital gains and dividends to 23.8 percent.
How will health care reform impact other income?
Starting in 2013, high-income taxpayers will be subject to a brand new Medicare tax on their unearned income. The 3.8 percent surcharge applied to capital gains and dividends, as mentioned above, is applied to other investment income as well. A different set of limits — $200,000 for single and $250,000 for those married filing jointly — are the baseline for the surtax to apply. Taxpayers whose adjusted gross income exceeds the threshold will be subject to this tax. This surcharge combined with the increased maximum tax bracket could mean that some taxpayers are paying 43.4 percent on their highest levels of income.
What other provision is noteworthy?
A key provision to be aware of is the reinstatement of the phase out for itemized deductions and exemptions. Itemized deductions, which had avoided phase out during 2010 through 2012, will now be subject to severe limits, depending on income levels. Total itemized deductions in 2013 and beyond, which include real estate taxes, mortgage interest and charitable contributions, will be reduced by 3 percent of the amount by which a taxpayer’s AGI exceeds a threshold of $250,000 for single taxpayers and $275,000 for those married and filing jointly. The reduction cannot exceed 80 percent of the total deductions.
What’s the overall impact?
For many executives, these provisions are probably what they anticipated. There are certainly some negative changes in the act, but there are at least two positive results:
1. Permanent changes to tax rates, including the dividend and capital gain rates.
2. Applying the new top income tax rate to a threshold amount that is double what was originally predicted.
These positives should at least slightly raise revenue without significantly raising taxes for all Americans.
Elizabeth Bunk, CPA, CFP, is partner-in-charge, Houston Tax and Strategic Business Services at Weaver. Reach her at (832) 320-3220 or Elizabeth.Bunk@WeaverLLP.com.
Our coverage of the fiscal cliff law continues next month with more insight into how these taxes will interact with those related to health care reform.
For more information about the fiscal cliff law’s impact to businesses and individuals, see the articles on Weaver’s website: http://weaverllp.com/News.aspx.
Insights Accounting is brought to you by Weaver
Taseer Badar was a fledgling entrepreneur in his mid-20s and ruin was staring him in the face. He had invested between $4 million and $5 million in four gas station/convenience stores in the Beaumont, Texas, area, and his company, the predecessor to ZT Wealth Inc., was leasing the properties to earn income. But when he chose the lessees, he failed to do an in-depth background check.
Within six months, all four stores had gone through their entire inventory and the lessees had siphoned the gas out of the tanks and disappeared. Badar closed the locations and started looking for a way to avoid bankruptcy.
He approached a wholesaler to help him restock his shelves to reopen, but he got a bonus in the form of some important business advice.
“He said, ‘You’re never going to get your money out of these stores unless you have an owner running them,’” Badar says.
As the owner, Badar gave it a shot, but his business was in Houston and the stores were 100 miles away. The experiment was short-lived.
“I was horrible — it was horrible — and I didn’t know what I was doing,” Badar says.
The wholesaler found people to operate the stores and advised Badar to give them an opportunity to own. With that opportunity ahead of them, the potential owners increased sales 50 percent, and within a year, he had sold all the stores at a premium.
Getting employees to buy in through ownership proved a valuable lesson to Badar, who went on to grow ZT Wealth and founded Altus Health Management Services, which provides support to medical facilities in administration, marketing, human resources and cash management.
Here’s how Badar, who serves as president and CEO, takes the promise of ownership a step further and engages the 700 employees at ZT Wealth and Altus Health Management Services to help generate $130 million in annual revenue.
Badar uses the analogy of an airplane to describe how to manage a company and its growth.
“Make sure that you don’t fly too high,” he says. “You take off in an airplane, and there is nothing underneath you. If it crashes, you can’t save the plane most of the time. When you grow too fast and you don’t have a foundation underneath you, it’s the same thing.”
That foundation needs to be more than statements describing the company’s core values or its mission. Instead, it should reflect a real knowledge and awareness of what is going on with your employees. Managing employees requires a bit of psychology to understand your employees, be successful and grow your business. And to do that, you need to consider the way employees view their jobs. Badar says it’s important to remember that you are dealing with human beings and their emotions, and by extension, you are also dealing with what’s going on in their families and their home lives.
You also need to understand your employees’ motivation for why they do things the way they do.
“If you understand that, you can work within the skill set of everybody,” Badar says. “And you can manage growth that way. If you come to terms with people’s skill sets, you really can manage and motivate them.”
The ownership card
The challenge for entrepreneurs after laying the foundation of their businesses is to build the first floor, the second floor and each successive one after that. If you have done your homework and discovered what makes your employees tick, the next step is to find out how to keep them motivated.
Badar says that motivation is not always about the money. Instead, it is often about the urge to keep the business growing. And the key to getting your employees to buy in is ownership, according to Badar.
“If you give someone ownership — not just options hoping that a stock price may hit one day — that will make someone work around the clock,” he says.
Then when you, as the leader, are not available and a client comes in, the employees treat the company — and by extension, the client — as their own.
Badar has given about 40 employee partners ownership in the company, and with ownership comes monthly dividends. After two years on the job, he has a pretty good feel of who is going to make it, who isn’t and who is going above and beyond the role of an average employee. If people aren’t going to rise to that role of ownership, you need to tell them so they can make the decision of whether they can be happy in their current role or if it is time to move on.
Badar says that each year, he chooses a few employees to share in ownership. And while some leaders may have difficulty giving up part of their business, he says you need to look at it another way in order to gain the long-term benefits.
“Don’t think about giving up anything,” Badar says. “You are gaining an asset by bringing an owner in. The shares that you give up mean you may just have a smaller piece of a bigger pie.”
Ensure a team approach
Once an employee becomes an owner, there often are immediate signs that the new arrangement is working. Employees become more engaged and take more initiative and begin working evenings and weekends. But underneath that new engagement remains the necessity of teamwork.
“You are as good as your people,” he says. “There is no ‘I’ in team. It’s very important. You’ve got to think ‘we,’ not ‘me.’”
When employees feel that they are in the business as part of a team, it discourages gossip and encourages employees to work together. And that should be a part of the company culture, with activities such as gossip discouraged in company policy. Badar has set a policy that identifies discussion of salaries and positions during the workday as cause for termination.
“Politics, for me, is the worst thing in a company environment,” he says. “There are politics in every company, including ours, obviously. But I have tried to shy away from it. The work environment is very important to me and kissing butt doesn’t work in our company.”
Instead, it is the engagement of employee ownership that leads to the success of the entire company.
How to reach:ZT Wealth Inc./Altus Healthcare Management Services, (713) 627-2000 Galleria office; (832) 230-8100 Pearland office or www.ztwealth.com
The Badar File
co-founder, president and CEO
ZT Wealth Inc./Altus Health Management Services
Born: Lahore, Pakistan. I have been in the U.S. since I was 11 months old.
Education: Texas A&M University. I have a degree in entrepreneurship management and finance.
What was your first job?
Mowing lawns. I learned how to ask for a sale. And if you didn’t get the edging right, someone wouldn’t pay you. I learned you have to do a good job or otherwise they wouldn’t pay you.
Whom do you admire in business?
I had a mentor who really taught me what to do and what not to do. His name was Ghulam Bombaywala. He had some 80 restaurants, he was a rags-to-riches person, and he has lost a lot of money since, but he still does OK. I learned a lot from him on how people interact.
As far as somebody that I admire in business, I would say who has leveraged a lot of relationships and who is a minority businessman is Magic Johnson. He is a great business leader. I don’t know him personally, but he is the first African-American athlete ‘near billionaire.’ Trying to help his community, doing things to give people a sense of an opportunity — that was his claim to fame.
What is the best business advice you have ever received?
Never burn your hut looking at someone’s palace. Stay within your own. Don’t try to compete with anybody. That washes away what you are good at. You’ll get there one day.
What is your definition of business success?
Contentment. Being financially free, paying off your loans and, thus, getting a great income. Business success is employing people, making a difference. But I think financially free is very important. Business is a risk. If you can mitigate that risk and still make that kind of money by employing people, that’s the success.
In traditional companies, management passes from one individual to the next based on professional qualifications. In family-run businesses, however, leadership positions often pass to close relatives irrespective of qualifications for the job.
In many ways, family businesses are better than traditional companies. The employees have been there through thick and thin, and there is a strong sense of pride throughout the organization. Still, over time, even the strongest organizations can falter if the leadership isn’t up to par. Mismanagement is the source of most business failures, and by the time the company realizes it needs outside help, it’s often too late.
Take, for example, a company that my private equity firm acquired in 2009. We made the mistake of leaving the management team — established by the second generation of family leadership — in place until 2010. When we decided to overhaul the company, there were several key steps.
Address staff issues. In mid-2010, faced with mounting operating deficits, I stepped in and assumed the CEO position. I eliminated redundant and ineffective staff members and streamlined reporting responsibilities, eliminating entire layers of management. Not only did this result in immediate cost savings, but it also enhanced staff performance and created accountability. Do not be afraid to let people go if they are not helping the business succeed.
The company is your first priority.
Get new perspectives. If management needs to be replaced, be wary about hiring existing staff members to fill those vacancies. Poor or insecure leaders tend to surround themselves with advisers whose critical thinking skills are weak. When incumbent management indicates that the status quo must remain, more often than not, this is indicative of management lacking in expertise and vision. A third-party expert might be needed.
Don’t overhire. Hiring several people at once is a classic leadership mistake. It’s easy to assume that one new hire will generate a certain amount of growth, which will, in turn, create a need for additional employees. Avoid this pitfall. Hiring before you have actual need or before free cash flow supports hiring a bigger staff is the first step on the path to failure. My rule of thumb is to wait until the existing staff has a heavy enough workload to necessitate three new employees, and then hire one.
Keep the peace. While trying to revamp any family-owned company, you will inevitably face challenges from people who have been there for years and who expect things to be done a certain way. Change is unavoidable, but you can gain your employees’ trust by retaining the best qualities of the business as you restructure. Don’t fix what isn’t broken. Your staff will recognize that you have the company’s best interests in mind and will trust your judgment as you implement changes.
Know your customers. Understand the choice your customers are making between you and your competitors. For example, at the company acquired by my private equity firm, I knew our products were outstanding, but our marketing strategy was ineffective and customers weren’t fully aware of our product range. Overhauling the marketing strategy has helped us expand our market share. This is a continuously evolving process. To perform better, you must exceed customer expectations on every visit. It is critical to understand your customers and the market so well that you anticipate customer needs before they know what they want. In restructuring the business, the rule of thumb should be, “Keep the best, overhaul the rest.”
Guest columnist Bruce Rosenthal is the president and CEO of Submarina California Subs. For more information about Submarina or franchising opportunities, please visit www.submarina.com.
How often do you go to market without a solid business strategy? Probably never, right?
The reality is that if you’re like most organizations, then you’re doing this right now — and you don’t even know it.
That’s because most organizations do not have a well-thought-out marketing strategy. Instead, most are doing what somebody told them they should do. This includes creating a mobile website, engaging in social media and advertising.
All of these are “smart” marketing initiatives. But if they’re done in a vacuum, there’s no way to measure what results those initiatives are intended to accomplish. Worse, you’re chasing tactics instead of delivering results.
There is a significant difference between marketing tactics and marketing strategy. Marketing tactics are ways to bring channels to life. This could be a new website or a mobile-optimized version of your site. Or it could be creating new sales collateral. Tactics should be used to bring your brand message and value proposition to life.
Unfortunately, if they’re not tied to a cohesive strategy, you will not achieve the results you desire.
A marketing strategy, however, allows you to understand the results you should achieve. It also keeps everyone aligned with what you’re trying to accomplish and where you are in the process.
As an example, there are three main reasons for a website: to verify your organization’s brand message to potential customers, to deliver your value proposition and conversion.
Conversion can mean different things for different industries. In retail, it might mean picking out a product, putting it in your shopping cart and making the purchase. In business-to-business, conversion might mean picking up the phone to contact the company, providing a name, email and phone number, or signing up to receive a newsletter.
Without understanding how consumers behave, you may be selling your marketing efforts short. You might not be providing enough information to clearly articulate your brand message or value proposition or you might not be offering users an easy experience that allows for conversion. So how do you ensure that a consistent brand message, value proposition and the ability to target customers converts across all marketing channels?
First, understand who the target consumer is and their needs, attitudes and behaviors. This can be discovered through research, including focus groups or through industry-based segmentation.
Then, conduct a deep dive to understand your business goals and objectives. In retail, this might be the number of sales you want to drive. In B2B, it could be increasing the numbers of prospects in your pipeline.
Finally, evaluate your company’s existing marketing tactics — your website, marketing collateral and overall brand message.
Only then will you be well-equipped to evaluate your overall tactics and compare them to marketing best practices and the competitive landscape. This results in recommendations that include expected business results and return on investment.
Prioritize these by measuring the highest impact against investment levels, and then create a timeline to implement them over a one- to two-year period. Share this strategy throughout the entire organization so everyone understands what will be accomplished and what the expected results are.
Without strategy, and an understanding of everything that goes into it, any money you pour into tactics tends to be money poorly spent. Done correctly, your marketing strategy suddenly becomes your organization’s key driver and leads to tangible and measurable business results.
Dave Fazekas is director of digital marketing for Smart Business Network. Reach him at email@example.com or (440) 250-7056.
What is the best way to motivate employees? Some successful CEOs treat employees as friends, while other equally high-achieving leaders regard employees as merely hired hands, giving them a day’s pay for a day’s work and nothing more.
What’s the best approach to produce the best results for the company, the employee and the employer? Much of the issue lies with one’s definition of a friend and the culture of the organization. Many companies boast that their employees are like family. This sounds great, but can it work?
If either party crosses the fine line that separates the difficult-to-define business and personal space, both employer and employee can become disenchanted or worse. One way to think of it is that friendship is more unconditional. We accept a friend for what he or she is or isn’t. On the flip side, the reality is that most bosses embrace or reject employees for what they do on a consistent basis.
The military has its own way of handling fraternization between officers and the enlisted by making it a possible court martial offense. This stance is predicated on the belief that socializing between these two levels is “prejudicial to good order, discipline and partiality.” It is well recognized that business relationships without boundaries can produce too much drama.
Perhaps what we need is a new definition for a nonemotional, congenial, enjoyable and productive day-to-day relationship between leader and follower. This moniker could be employee-friend, or “e-friend” for short. “E-friend” isn’t an app but would describe an employer/employee relationship where there is mutual respect and a genuine appreciation of one another, underscored by an understanding, albeit perhaps unspoken, that when the time for talking is done, the boss has the final word on matters that occur between 9 a.m. and 5 p.m. Using these ground rules, both sides can have it both ways by using good judgment and treating each other as they would want to be treated if their roles were reversed.
The employee should expect from the boss that, when the chips are down, either on a business basis or when the employee has a personal problem, he or she knows that the boss will be there for him or her, providing understanding and advice and, when requested, helping the employee maneuver through rough patches. From the employer’s perspective, the employee would be someone who, through thick and thin, is there for the company and can temporarily put personal needs aside when there is a business issue that can’t be postponed.
The e-friend boss should know as much about the employee as the employee wants the boss to know, which can include sensitive professional problems or even family or medical issues. In a good relationship, the boss could certainly know, as one example, what the subordinate’s kids are up to in their lives and be the first to say to the employee that it’s more important for him or her to go to an offspring’s ballgame or play, rather than putting in extra time on the business project du jour.
Instinctively, employees know if a boss truly cares or is just going through the motions to be politically correct. They know if the head honcho is sincerely concerned about them as a person, not just another set of hands.
Not everything and everyone in the workplace are created equal. There will always be a pecking order; however, there is nothing wrong with truly enjoying the people with whom you work every day and sharing meaningful experiences, all of which lead to a more fulfilling role for both the employer and the employee. The best criterion to avoiding problems is using generous doses of plain common sense. There is a much-quoted line from the 1987 movie “Wall Street,” starring Michael Douglas as the ruthless tycoon Gordon Gekko, who proclaimed, “If you want a friend, get a dog.” This provoked both laughs and sighs, but in the real world, this attitude makes for a very lonely Ebenezer Scrooge-type life for the boss and a shallow existence for employees who must spend more than half, at the very least, of their Monday through Friday waking hours working.
At times, people can be difficult, both to work for and with. However, it’s the people who make the company and relationships that combine respect and a form of e-friendship that can make the real difference.
Michael Feuer co-founded OfficeMax in 1988, starting with one store and $20,000 of his own money. During a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling this retail giant for almost $1.5 billion in December 2003. In 2010, Feuer launched another retail concept, Max-Wellness, a first of its kind chain featuring more than 7,000 products for head-to-toe care. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. Reach him with comments at firstname.lastname@example.org.
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Richard Branson is full of big ideas. The man who founded six companies that each rake in more than $1 billion annually dares to think big. For him, it’s all about the experience, making a difference and not doing things the same way as the competition. An idea captures his imagination and he sets out to turn it into reality.
For him, it’s not about the money. It never has been.
When he sees a situation where he thinks he can make a difference in people’s lives, he looks for a way to make a difference. He understands that “why” he is doing it is more important than the “what” or the “how.”
Author and consultant Simon Sinek agrees (see video link). He explains that Apple is wildly successful at what it does not because it can build computers better than anyone else but because it understands “why” it is doing so. It’s not that the competition doesn’t know what it is doing or that it doesn’t have talented people creating good products. It’s just that Apple understands why it is in business and focuses its message on that instead of what it does — which is build electronic devices.
Sinek says that people like to do business with people who believe what they believe, so they buy more on the “why you do it” rather than what you are actually doing. Notice that profits are secondary. If you do things the right way for the right reasons, profits come naturally.
You might already have a big idea for your business, but it will most likely never reach its full potential unless you understand why you are doing it. Have you ever stopped to think about why you are in business or why you are doing what you are doing? It can be an enlightening exercise.
With the demands of daily business, we seldom stop to think about the reasons behind our actions, and if we do think about it, the answer is often “to turn a profit.” But to what end?
When you understand why you are trying to make a profit and the answer goes beyond simple wealth, then you are getting to the heart of what differentiates a good business from a great one. Maybe the reason why is a social issue, such as eliminating hunger, or maybe it’s a medical issue, such as curing a disease. But it doesn’t have to be grand. The “why” can be something like “making computers easy for everyone to use.” The important part isn’t the scope; it’s understanding your business’s basic reason for existence.
When you’ve taken the time to understand that, your business will have the potential to do great things because employees and customers alike can unite around a common understanding.
It’s why Apple is a great company and it’s why Richard Branson is wildly successful. If you’re already doing it, you’re on your way. If not, take the time to think about it.
Fred Koury is president and CEO of Smart Business Network Inc. Reach him with your comments at (800) 988-4726 or email@example.com.
According to Merriam-Webster, management is “the process of dealing with or controlling things or people.” While “controlling” is a bit harsh in my book, the definition is correct in it's focus on management of people. To be a good manager or team leader, you have to have an above average interest in people. Success in management is found in the relationship developed between leader and team.
The best managers see themselves as catalysts. They become that agent or force that provokes or speeds significant change or action. These managers get things done quickly by leading with solid people skills.
Here are 4 people skills that every good manager must possess:
1. Understanding the right way to give a critique.
The worst thing you can do if you want to get someone to listen to you is to criticize.
As human beings, we hate to be criticized. When we feel attacked, we usually attack back – even when we are in the wrong. Many of us fall into the trap of thinking “I know I am right and I am going to prove it to you.”
Over the years I have learned that this way of thinking simply does not work.
A good manager has the self-control and presence of mind to put aside the needs of his own ego and say “I've got a problem, will you help me?” Enlisting cooperation in this manner will always lead to better results.
2. Understanding the need to help.
If someone comes in to criticize you or to raise your game, under what circumstances would you be willing to accept the critique?
The answer for me is simple. If I think someone is really trying to help me, then I'll engage and listen.
On the other hand, if I feel that the person is just trying to get the job done or make himself look good, I may listen, but my heart will not be in it. My interest and creative energies will be lost.
The truth of the matter is: Managers will only have influence over their people to the extent that their people think they are sincerely trying to help them. It is simply the way human beings work. Good managers truly care about their team and work hard to help them.
3. Understanding no two people are the same.
As a manager, you do not influence everybody the same way. People do things for their own reasons – not for others and not for you.
Inspiring people to your company vision happens best when you help them to see what's in it for them. This varies from person to person. It is your job to discover what things motivate each member of your team.
Some people are motivated by a challenge, some by money and others by recognition.
It is about reading their needs, desires and wants and then leading in such a way that ensures their success at obtaining them.
4, Understanding the best way to get tasks completed.
An effective manager realizes that each time he has an interaction with someone about a task, there are two things going on:
a. A discussion about the task and how to get it done.
b. The way in which the interaction affects the managers relationship with the collegue.
The first is pretty straightforward, but it's success is determined by the tenor of the second.
It must be said that the task should not be sacrificed for the relationship at all costs. It must also be said that winning on the task is not good if the manager ruins the relationship. Both are important and the manager must do well in each area.
I refer again to the need for the manager to develop relationships with the team in order to understand the best way to get things done according to individual members needs, desires and strengths.
In the end, good managers know how to use their influence and power to help others achieve beyond their wildest dreams.
I like management guru Tom Peters' definition of power:
“My definition of power is understanding that all of managing — and this comes out of the old grade school book — is the notion of doing more than you and I can do by ourselves; that is, doing things through other people.”
He goes on to say:
“If you are interested in getting things done effectively and imaginatively through other people then what you're trying to do in the workplace is exactly what you're trying to do on the football field – which is to get people who work with you to achieve beyong their wildest dreams.”
Workplace managers understand that good people skills determine their success. They work hard to develop the skills needed to lead in ways that shows their interest in people.
DeLores Pressley, motivational speaker and personal power expert, is one of the most respected and sought-after experts on success, motivation, confidence and personal power. She is an international keynote speaker, author, life coach and the founder of the Born Successful Institute and DeLores Pressley Worldwide. She helps individuals utilize personal power, increase confidence and live a life of significance. Her story has been touted in The Washington Post, Black Enterprise, First for Women, Essence, New York Daily News, Ebony and Marie Claire. She is a frequent media guest and has been interviewed on every major network – ABC, NBC, CBS and FOX – including America’s top rated shows OPRAH and Entertainment Tonight.
She is the author of “Oh Yes You Can,” “Clean Out the Closet of Your Life” and “Believe in the Power of You.” To book her as a speaker or coach, contact her office at 330.649.9809 or via email firstname.lastname@example.org or visit her website at www.delorespressley.com.
As a result of the Patient Protection and Affordable Care Act (PPACA) and its effects, employers are taking steps to manage the cost of care by moving toward self-funded insurance and greater oversight of health benefit plan subcontractors. Others are making a cost trade-off between the tax burden of providing versus not providing coverage.
Selvadas Govind, a senior manager in Assurance Services at Weaver, says it’s too soon to say whether costs will go up or down in our complex health care system.
“The only thing one can do is try to manage the risks that are presented at a particular point in time,” he says. “You’re not going to be able to influence the market or analyze it in any significant way.”
Smart Business spoke with Govind about some of the risks employers face in this new era of health plan benefits.
What is the impact of companies increasingly self-insuring?
Larger businesses are making the shift toward self-insurance, which is more transparent in terms of management. Insurers no longer go to a company and give them a rate; rather, companies can pay medical costs themselves and hire a third-party administrator (TPA) to handle administration. It’s a great business practice, but the downside is employers are on a less-than-level playing field with insurance companies that know how the industry works.
It’s a big risk that needs to be managed, and many organizations are not in a position to mitigate those risks. In fact, one study found employer audits of TPAs had error rates for medical claims of 3 percent to 16.8 percent. Similarly for pharmacy benefit programs, errors ranged between 3 percent and 8 percent. A 3 percent error rate by a plan’s pharmacy benefit manager in a medium-sized entity of 2,000 employees can amount to an overpayment of $155,000. For this reason, it is often worthwhile to bring in external auditors with specialized knowledge to mitigate this risk exposure.
Employers also need greater oversight of health benefit plan subcontractors. For example, after an employee pays his or her pharmacy co-pay, the balance is charged to a pharmacy benefit manager (PBM) which, in turn, pays off the distributor or manufacturer and submits the claim to the self-insured company. However, there is usually a rebate from the distributor or manufacturer to the PBM. By right, that rebate — which can be quite substantial — belongs to the employer, not the PBM.
How does the individual mandate create new risks for employers?
With the individual mandate and the increased dependent eligibility age of 26, there’s a financial incentive for children to remain on their parents’ health care plans. The risk companies should consider is that some may try to retain children on their plans beyond age 26 and/or include dependents who are not necessarily their own. The benefit of this abuse to perpetrators is that they can choose to pay the lower tax penalty for not having individual coverage and still obtain coverage through their parents at employer-subsidized rates. So, the situation leads to an educated decision on whether it is more cost effective to try to stay on the parents’ plan, pay the penalty for not buying coverage, or buy coverage through an employer or a health benefit exchange.
You can audit this risk, but health benefit plan audits tend to be invasive, which could irritate employees. A way to sensitively handle it is to educate employees on the potential issue and what the cost could be if even a small percentage of employees are dishonest. Companies should also review the amount of evidence required to justify a dependent; however, if the requirements are too stringent, employees could resist.
Are many employers deciding to take the penalties and not offer insurance?
It depends on the attitude of the employer and the type of work force. There will always be employers who offer better benefits than others. However, it’s a very industry-specific question, and in an industry with narrow margins, businesses may simply not be able to offer insurance. There could also be a shift away from full-time employees who qualify for health care benefits to the use of more part-time employees who would not qualify for employee-sponsored health benefits.
Selvadas Govind, MPA, CPA, CIA, CICA, CRMA, senior manager, Assurance Services, Weaver. Reach him at (512) 609-1940 or Selvadas.Govind@WeaverLLP.com.
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Small business owners are increasingly concerned about obtaining long-term or short-term business loans, according to a survey by the National Federation of Independent Business. However, by showing enthusiasm and understanding for your business, you can get started in a good way with your banking relationship, thereby increasing your changes of securing a loan.
“Build a support group, have good financial understanding and really keep your books in the best possible order that you can,” says Hank Holmes, president, Texas Region, of Cadence Bank.
Smart Business spoke with Holmes about how business owners can use good financial practices and a trusted relationship with their bank as a foundation for future lending needs.
What does a bank look for in a good borrower?
It’s important for borrowers to be prepared and understand their business as much as possible, including the risks. Often you can talk about the upside — what you can do to generate new revenue — but you also need to understand what could cause you to miss your revenue goals, such as increased expenses from health care or a change in the industry’s environment.
Additionally, many times credit decisions are a function of a small or mid-sized business owner’s personal financial performance and credit history. So, as you’re developing your business, it’s important to maintain your personal financial affairs.
How do you find the right bank?
Start developing a relationship with your current bank. The earlier you can develop that trust and understanding with your banker, the better.
You want a bank that meets your needs and understands it’s a relationship-driven business. That way the banker can alert you when your business could be impacted by trends in other industries. If you have a banker that you’ve dealt with — that you’ve developed a relationship with — typically he or she will know that kind of thing is happening at the same time as you do. They can see when there’s an improvement versus a potential bump in the road.
As a business owner, you also can use your contacts in trade organizations or the industry to reach out and find a bank that understands your industry.
What steps can you take to best prepare for meeting with your prospective banker?
• Have your financial statements in order. Understand the revenue/expense side of your business — have a good grasp of the things that are going to positively and negatively impact your company. There are a number of good options, such as QuickBooks, that can be used to maintain your finances at the highest level you possibly can.
• Be able to explain what your business is and what would influence your financial statements. Is it the price of oil and gas? Is it the cost of electricity? Are you going to be able to get the inventory you need in order to meet the revenue needs of your clients?
• Be aware of your personal capacity and credit worthiness. It’s important to not only be able to run and understand your business, but also maintain your personal credit worthiness as positively as you can. In general, if you’re a company that has revenue of a million dollars or less, banks look at the individual who is driving that business, who is there on a day-to-day basis. And, it’s important for that person to show his or her capacity and support for that credit.
When you build and maintain a relationship with your banker, especially one who understands your business, you can take it one step further. If for some reason you get turned down for a loan, then find out why in order to determine what you can do on the next effort.
Hank Holmes is president, Texas Region, at Cadence Bank. Reach him at (713) 871-3913 or email@example.com.
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An effective screening process tailored to each job opening can help eliminate candidates who are unsuitable for a position early in the hiring process and minimize hiring mistakes. And in today’s sluggish economic environment, the process of pre-screening applicants is more critical than ever.
Lisa Deramo, branch manager at The Daniel Group, says taking the time to create individualized assessments is worth the effort.
“You need to be thorough with your interview questions and your screening process,” she says. “Make sure you’re setting somebody up for an assessment or pre-employment test based on the kind of job for which the person is applying.”
Smart Business spoke with Deramo about the importance of assessing a job applicant’s skills, knowledge and personality through testing.
Why should employers use pre-employment assessments?
Tests and other selection procedures screen applicants by gauging skill levels, which helps determine the most qualified candidate for a particular job. A number of assessment tools can be used, including cognitive and personality tests, medical exams, and credit and criminal background checks.
Pre-employment assessments are important for high-skill jobs such as machinists or welders in the manufacturing and oil and gas industries. A welder applicant, for example, might be required to take a welding test and demonstrate his or her ability to read a blueprint. For other jobs, such as receptionist, the applicant should take a software test to prove they can utilize common programs like Excel.
How should the interviewer approach the interview?
As an interviewer, you should tailor your interview questions to each candidate and ask probing questions. It’s important to investigate any gaps in the resume and discover the applicant’s exact experience. For example, if the job opening is for a machinist, it’s important to determine what kinds of products or materials the applicant has worked on.
In addition, look at the candidate’s social skills, personal presentation and other contextual factors while the interview is being conducted. How are they presenting their self? Are they twitching or not making eye contact? Are they outgoing or just sitting back as if they don’t care?
If an inexperienced employee is doing the hiring, it is a good idea have an experienced mentor help throughout the process and possibly sit in on the interview.
How essential are testing or screening measures?
They are important and are commonly used to screen out unsuitable applicants and minimize hiring mistakes. You might do drug and personality testing as well as aptitude and integrity tests. It’s worth taking the time to create the best tests for the job opening.
With aptitude tests, it’s a good idea to have job applicants take both written and performance exams. For example, if the job requires driving a forklift, applicants should be qualified by a skills test, where they’re asked to successfully perform certain commonly used maneuvers, and a written forklift safety test. It’s surprising how many applicants aren’t as strong on the forklift as they claim to be, which can be shown by how they do with the safety questions.
Personality testing is used a lot. Does it make much of a difference?
Personality testing can make a difference. Maybe you’ve got a number of quiet people working in an office and then someone with a strong, dominant personality comes in, making a big impact.
The personality tests are customized, based on what you’re looking for, and give an indication of how people will likely work with each other. Outside sales is a good position for employers to apply that type of test because it can offer clues as to how successful a candidate is going to be.