When she took the helm of Carl Warren & Company nine years ago, Caryn Siebert was facing the challenges of a company suffering substantial losses and outdated infrastructure. She went to her first board meeting and honestly and directly told the board members that under her turnaround plan, it would be three years before the company would break even.
Siebert, leveraging her knowledge of Six Sigma and prior experience as a CEO, was successful, and she took the employee-owned third party claims and litigation management company back into black ink.
Before Siebert came to Carl Warren & Company, the organizational structure consisted of branches that acted as separate profit centers. She recognized that this configuration was damaging to the business — the branches continued to compete against each other for clients and profits.
To eliminate this situation without significant staff layoffs, Siebert decided to restructure the company by forming business lines focusing on specific services like public and insurance claims. That way, offices are working together to best allocate resources and assist clients across geographic areas.
Carl Warren & Company realized significant growth, and in 2009, was named one of the “Best Companies to Work For” in OC Metro magazine. However, as the economic recession took hold, clients wanted cheaper rates and expenses continued to increase.
Siebert knew she could not cut employees or high-level services. Instead, she decided to expand the company into a new market segment, bringing workers’ compensation in its product mix. Revenues increased to $30 million that year.
Siebert’s aptitude for instilling loyalty — there is an almost 100 percent employee retention rate — extends even further in terms of her client relationships. With customized programs, certificates of guarantee and years of experience, the company has a strong client base that only continues to grow.
How to reach: Carl Warren & Company, www.carlwarren.com
Companies using the Interest-Charge Domestic International Sales Corporation (IC-DISC) provisions of the tax code, which are intended to help U.S. companies compete internationally, already know that the incentive essentially reduces the top federal tax rate on certain income from qualified goods and services from 39.6 to 20 percent.
“What you may not realize is that the intended and allowable available savings are often much, much greater,” says Amit Mathur, CPA, director at WTP Advisors.
Rob MacKinlay, president of Cohen & Company, says, “Many companies use basic, aggregate IC-DISC calculation methods, though other allowable methods explicitly encouraged in the regulations yield a much higher result. This can be the equivalent of claiming a standard deduction on your individual tax return when itemized deductions are much higher. Many of our clients have dramatically increased savings with a transactional analysis.”
Smart Business spoke with Mathur and his industry peers about IC-DISC and how business owners can extract more value from its proper implementation.
How can IC-DISC savings be maximized?
Most companies utilizing the IC-DISC enjoy the reduced tax arbitrage for either 4 percent of their qualified export gross sales, which is limited to the taxable income from those sales, or 50 percent of the taxable income from qualified export sales. Many believe that these are the maximum amounts used to determine the IC-DISC commission, which is subject to a top rate of 20 percent, rather than 39.6 percent. In reality, these amounts should be considered the minimum commission that results from the two simplest, basic methods.
Truly maximizing the intended and allowable benefits from the IC-DISC requires a more in-depth calculation, but may not take much more time. Each transaction can utilize a choice of many other attractive methods explicitly defined and encouraged in the regulations. For instance, transactions that yield a loss can generate commission. Transactions for products with less-than-average profitability compared with their product group or line also may yield additional benefits.
An analysis utilizing the most beneficial of these methods for different transactions will yield higher results, often more than double, compared with using the basic methods at an aggregate level.
Steve Switaj, CFO of Three D Metals, a company that has used transactional analysis in conjunction with the IC-DISC for years, says, ‘While fluctuation in material prices and unforeseen costs are constant concerns, the increased IC-DISC savings that often results from such variability is a nice feature of the incentive, and enables us to compete in export markets more effectively.’
Can prior year IC-DISC savings be improved?
Re-determinations of IC-DISC benefits can be performed for any open tax years. As Jim Bowen, tax partner at Bober, Markey, Fedorovich & Company, puts it, ‘If the savings from a transactional analysis of IC-DISC benefits is significant, amending the results should be considered, particularly for companies under audit for given tax years.’
Are you overlooking the IC-DISC entirely?
Closely held manufacturers, distributors, growers, software producers, equipment leasing companies, and architectural or engineering firms should consider it.
Mark Klimek, head of the tax practice at McDonald Hopkins, LLC, says, ‘Manufacturers and distributors not fully exploring this incentive may be missing significant tax benefits from a relatively inexpensive to implement government incentive that does not disrupt business operations.’
If products and services are ultimately used outside of the U.S., they will typically qualify. The rules for component parts ultimately sent outside of the U.S. are even more generous — generally, they can even return to the U.S. after being incorporated into another product. Tod Wagner, of Libman Goldstine Kopperman & Wolf, says, ‘Because of the favorable rules defining qualified export property, many companies eligible to use an IC-DISC are overlooking the incentive entirely as they do not think of themselves as manufacturers or exporters. In reality, they may need not to be either.’
Amit Mathur, CPA, is a director at WTP Advisors. Reach him at (216) 292-6732 or email@example.com.
Ready for a complimentary analysis of whether your IC-DISC benefits can be increased? Call Amit Mathur at (216) 292-6732.
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The purpose of an arbitration clause is to resolve disputes by means of a private proceeding that is generally perceived as quicker and less expensive than the court system. Yet many contracting parties do not fully analyze the arbitration clauses in their contracts, and so do not draft such provisions in a comprehensive and precise manner. These lapses can lead to costly and time-consuming disputes.
“Any party entering into an arbitration agreement, therefore, would be wise to carefully analyze the arbitration clause thoroughly, with a view to ensuring that it will accomplish all of the party’s goals,” says Courtney D. Tedrowe, a commercial litigation partner at Novack and Macey LLP.
Smart Business spoke with Tedrowe about what it takes to draft an effective arbitration clause.
What are the key considerations in drafting an arbitration clause?
Broadly speaking, there are two categories of issues to consider when drafting an arbitration clause. The first of these concerns the extent to which the court will be involved in pre-arbitration and post-arbitration issues. The second category concerns the parameters and procedures of the arbitration proceeding.
Why consider the court’s involvement in pre- and post-arbitration proceedings?
Just because you have an arbitration clause doesn’t mean that you will avoid court proceedings. Not infrequently, a party will oppose the arbitration demand on the grounds that it does not fall within the scope of the arbitration clause. Under the Federal Arbitration Act, courts are required to ensure that the claim is arbitrable. However, the arbitration clause can specify that the arbitrator decides such substantive ‘arbitrability’ issues, effectively limiting the court’s role from the very outset.
The parties may also restrict the court’s involvement in post-arbitration proceedings. Some post-arbitration judicial action is inevitable, since courts, not arbitrators, have the power to reduce the arbitration award to an enforceable judgment and to decide any challenges to the award. Here, the parties can use the arbitration clause to limit the grounds of appeal, further reducing the chances that the award is vacated, and minimizing the risk of lengthy appeals.
How should the arbitration clause be drafted to provide for procedural matters?
Parties can agree to pretty much whatever they want when it come to procedures. Typically, agreements simply select an organization’s rules, such as the American Arbitration Association, JAMS or ADR Systems.
There are two big pitfalls here. First, most organizations have more than one set of rules with sometimes very different deadlines, discovery options and evidentiary rules. When drafting the clause, be sure that you select not just the organization, but the specific set of rules most favorable to the particular situation.
Second, organizations change their rules regularly, meaning parties will likely be bound to use the rules in effect at the time of the dispute, which may have changed.
Can parties modify the applicable rules?
Yes. For example, although the rules of evidence do not typically apply in arbitration, parties may specify that they will apply, or that only certain rules of evidence apply. Parties also have the ability to craft the discovery process to their particular situation. The arbitration clause can set forth, among other things: whether parties may take depositions and, if so, how many; whether documents requests and interrogatories will be allowed and, if so, how many; and the parameters of any other discovery method.
The clause may also deal with the hearing location; pre- and post-arbitration motions, such as motions to dismiss; and the arbitrator’s power to fashion specific remedies.
How much freedom do the parties have to control the arbitrator selection process?
Parties have complete control over who arbitrates their dispute. The specific arbitrator could be identified in the clause, or the clause can set forth the rules by which an arbitrator is selected, either expressly or by selection of a particular organization’s rules.
Courtney D. Tedrowe is a commercial litigation partner at Novack and Macey LLP. Reach him at (312) 419-6900 or firstname.lastname@example.org.
Insights Legal Affairs is brought to you by Novack and Macey LLP
Every member of Dr. Vinod Jivrajka’s family is an entrepreneur, so it’s no surprise that Jivrajka is being recognized for excellent entrepreneurship skills. Born in Mumbai, India, Jivrajka started medical school at age 17, after which he came to the U.S. and began working for hospitals in New Jersey and Kentucky.
He eventually moved to Compton, Calif., after attending a conference in Los Angeles and falling in love with Southern California. After two years, he became a partner with two doctors with whom he would work for the next 25 years. Though the practice was the busiest group in the region at the time, he couldn’t sit still. The entrepreneur in him wanted to try something different.
Until the 1980s, there was no concept of a management care organization. Jivrajka saw an opportunity to innovate the industry. After decades of practicing as a physician, he realized the operational efficiencies a medical management company could achieve by overseeing both the management group and the medical group.
He borrowed money using the equity of his personal home, persuaded his slightly skeptical friends to buy in, and founded AppleCare Medical Enterprises in 1996, which includes two AppleCare Medical Groups, a management services organization, a hospitalist medical group and an insurance agency. By 1999, the company had grown by 10,000 percent.
Jivrajka, who is founder, president and CEO of AppleCare, successfully recruited 22 employees to start with him, of which 12 are still at AppleCare today. By making doctors’ interests the management company’s interests, AppleCare successfully created a work environment that put doctors first, which enabled it to gain doctors’ trust, confidence and loyalty.
He has led the growth of AppleCare to 185 management employees cooperating with almost 1,000 affiliate doctors servicing more than 75,000 AppleCare members. The company celebrated its 10th anniversary in April.
How to reach: AppleCare Medical Enterprises, www.applecaremedical.com
Heidi Golledge can speak to the benefits of an early start in entrepreneurship. While a student, she began selling candy bars via fundraisers and would give all her earnings to her single-parent mother to help pay household bills. She later began selling rabbits to pet stores, and earned enough money to purchase a computer.
With that entrepreneurial background and her education, she began brokering home loans, but despite some lucrative periods, she wanted her own show. She saw an opportunity to partner with companies like Monster.com to offer another layer to the recruiting business that would allow more visibility to job opportunities via multiple channels. She met her future business partner and in 1999 the two started CyberCoders.
The company has developed into a leading, worldwide recruiting firm that utilizes technology and highly skilled recruiters to match people with companies.
Golledge later bought out her partner to take the company in a strategic direction that brought financial risk — an online career community (“job blog”) that would eventually be known as the CareerBliss arm of CyberCoders. She was determined to offer a way for people to learn about a company’s culture before seeking a job there to make sure that the culture fit the person’s needs and career path. The risk paid off and CareerBliss produced 100 percent year-over-year growth in revenue for the last three years.
Built on a recession-proof business model, CyberCoders has opened or expanded multiple offices during the recent economic downturn. While others were laying off employees, CyberCoders was opening offices and hiring more people, taking advantage of top talent.
Inspired by her family values, Golledge makes them her business values as well. She treats employees like family and looks to make them feel successful and happy. Golledge believes that a happy person is a productive person, and she has zero tolerance for disrespect in the workplace.
CyberCoders, www.cybercoders.com; CareerBliss, www.careerbliss.com
Retail & Consumer Products
When Nick Seedorf was completing his religious studies in college, he believed he was on a journey, and he could see himself investing in the spiritual lives of college students.
But he had no idea that instead he would follow in the footsteps of three generations of family entrepreneurs instead.
More than 10 years later, he has one of the fastest growing companies in the nation, with nearly 100 employees and millions in revenue. But what does he believe is the best part about this? He still invests in people and relationships — through an opportunity he never expected.
After college, Seedorf’s high school hobby of buying and selling products grew into an e-commerce business called myGearStore.com, a mobile accessories retailer. The company was started in his one-bedroom apartment while he was a newlywed. The enterprise grew over the next few years, and he wanted to consolidate his suppliers through a distribution company, rather than continuing to buy direct from so many manufacturers.
Seedorf researched distributors, but he found no one was solely focusing on mobile accessories and keeping the right products in stock. Along with his insights into the size of the opportunity and the unaddressed pain points of retailers, Seedorf saw the need for a distributor who was a trusted adviser and had high-touch service and the right product assortment.
He launched nuCourse Distribution Inc. on Jan. 1, 2008, as an electronics accessory consultant as much as it is a distributor. Molded into an accessory advisory firm, the company focuses on building one-to-one relationships with each brand and each customer to effectively be “the matchmaker” in the marketplace.
This customer intimacy strategy has helped Seedorf build and keep customer connections and has given the market an understanding that not every retail outlet desires the same product, but the demographics of an area defines product sales.
How to reach: nuCourse Distribution Inc., www.nucourse.com
Retail & Consumer Products
Personal ego was the furthest thing from John Fuller’s mind when he took over as CEO at The Johnny Rockets Group Inc. Instead of talking about what he wanted to do, Fuller set out to build lasting relationships with people in the corporate office and with franchisees and suppliers for the eateries that offer “timeless American food.”
And when he learned that no CEO from the company had ever visited its top suppliers or stepped foot in a particular franchise location, he became even more driven to develop a strategic plan for the future that incorporated everyone’s insights and contributions.
Fuller found that many of his franchisees had set their own path because of the lack of communication from the home office. The result was a company culture that had splintered in many different directions and left the organization without a strong common identity.
Fuller spends about half the year visiting restaurant locations to speak with employees and customers. He takes feedback and uses it to shape the decisions that are made at locations around the world. The effort has brought alignment and a sense of empowerment to employees who feel like they are a bigger part of this iconic organization.
His goal was not to turn every location into a clone of the others. One of his four key business principles is to focus on building leaders who can be difference-makers, rather than caretakers. By building a solid team able to handle the day-to-day operations, leadership can make decisions that can make a long-term difference in the business.
Fuller also believes in the need to see how customers are experiencing the product on a regular basis, which avoids being caught by surprise by a flaw in the service delivery. He advocates making every customer smile at least once during a visit to create joy, as well as understanding when problems do arise.
How to reach: The Johnny Rockets Group Inc., www.johnnyrockets.com
Retail & Consumer Products
Hezy Shaked has faced many different challenges throughout his life. So when he and his wife, Tilly, realized that $3,000 was not going to be enough to complete their cross-country journey of the United States, Shaked was not shaken a bit.
He was committed to being the provider his family needed, so this young man who had been born and raised in Israel took his first U.S. job at a garage. His living accommodations were under a staircase, but Shaked remained positive about his future.
He took inventory of what he could do and focused on the idea that all humans need clothing. So he took a few retail items and a strong work ethic and traveled to an Orange County swap meet.
Things began to come together and Shaked evolved from a few items at a swap meet to a truck full of new clothing and apparel to the opening of his first retail store in Los Alamitos, Calif.
As the founder, chairman and chief strategy officer of Tilly’s Inc., Shaked continued to focus on providing value and working hard to get his customers what they wanted. He was willing to make investments to build the infrastructure he needed to keep his company growing.
This high level of commitment is also evident in the way Shaked goes about hiring employees and building a strong culture. He understands how much his employees depend on him for their livelihood and makes sure they see it every day. He is willing to spend money to make things happen, but is careful about those decisions so that he doesn’t put the future of the organization at risk.
It’s a spirit that allows the company to succeed and allows Shaked to help those outside Tilly’s who really need it. The company has consistently supported a number of charitable causes through both its time and monetary donations.
How to reach: Tilly’s Inc., www.tillys.com
Real Estate & Hospitality
David Kim and Jerome Fink co-founded The Bascom Group, a private equity firm primarily specializing in value-added multifamily real estate investments, in 1996. At the time they acquired their first multi-unit property, California was facing a foreclosure and job crisis. The market was unstable and investors were weary, but the two went on to develop in markets across the U.S.
The two again encountered challenges during the recent financial downturn. They were able to overcome them by piecing together a different organizational structure that essentially kept all employees on the job. In a period in which transactions were scarce, Kim and Fink assigned new roles to each acquisitions member, roles that consisted of supporting an operations team counterpart with revenue and expense management.
In addition, the duo renegotiated with lenders to avoid financial troubles with their loan-based investments and properties. They restructured their loans and optimized their equity, which allowed them to make more strategic buys of distressed properties.
These and other strategies led Bascom to an 8 to 12 percent increase in operating profits between 2008 and 2010.
Kim and Fink always take care of their employees, providing them with the opportunity to have an equity stake in their real estate funds, which promotes a sense of working toward a common goal.
They both believe that investing in people, talent and the community will enable continued and sustainable growth, with particular focus on health, wealth, education and lifestyle.
Giving back to the community is a key success factor for Bascom that provides a symbiotic relationship between the community and the company. When the community prospers, their properties benefit, which leads to wealth creation for the company.
How to reach: The Bascom Group, www.bascomgroup.com
An additional insured endorsement is an amendment to the named insured’s policy, usually the general liability policy, that extends coverage under the terms of the policy to another entity.
“This is usually required in a contract where company A needs to provide insurance coverage to company B, so company B enjoys protection from a new risk that arises out of company A’s conduct or operations,” says Shantih M. Charlton, CIC, CISR, senior account executive at Momentous Insurance Brokerage, Inc.
Smart Business spoke with Charlton about why you need additional insured endorsements from the companies you work with, and why you may need to provide them.
What are some examples of when an additional insured endorsement is needed?
A building owner/landlord may require a tenant to name the owner/landlord as an additional insured on the tenant’s insurance policies. If there is an accident or loss on the rented premises, such as a slip, trip or fall, the tenant’s insurance coverage can respond to the claim.
Another example would be a general contractor requiring subcontractors to name it and the owner as additional insureds on the subcontractor’s policies. Then, the subcontractor’s insurance protects the general contractor and owner if someone sues based on an accident arising from the work of the subcontractor.
Also, product manufacturers may cover its sellers as additional insureds. In these cases, the retailers are better protected from claims arising from products they sell.
How is additional insured status provided?
A certificate and endorsement are both required to provide additional insured status. The carrier needs to issue the endorsement, which is part of the policy. If you receive a certificate stating that additional insured status applies but there is no endorsement attached, request a copy of the actual endorsement or policy wording.
What is the cost to add this endorsement?
It might already be included in the policy premium, or it could cost $100 to $500 extra. The cost of adding an additional insured to a liability insurance policy is generally low, as compared to the costs of the original premium.
If you get a certificate from someone with the additional insured endorsement, do you still need your own insurance?
Yes. Additional insured status doesn’t mean you don’t need insurance. It only means the company receiving the additional insured status has insurance for the other company’s negligence. So if company A is an additional insured on company B’s policy, it is covered if company B’s negligence causes a claim and company A is named in a resulting lawsuit. If that same claim was actually due to company A’s negligence, or if company B’s insurance limits were not adequate, company A would need its own policy to protect its interests.
Is an additional insured endorsement the same thing as a named insured?
No. A named insured is the person designated in the policy as the insured. Additional insured status does not give the same rights under the policy terms as a ‘named insured’ or ‘insured.’
What should you keep in mind when entering into an agreement with another business?
Whenever your business enters into an agreement with another business, follow these general principals:
• Never assume the other business has liability coverage. Obtain a certificate of insurance or copy of their policy.
• Review both the contract and endorsement with legal and insurance representatives. Each situation presents unique risks, and contract wording and policy forms can vary greatly.
• Understand what your additional insured coverage status covers. Consult with your insurance adviser to better understand how this affects your business.
Shantih M. Charlton, CIC, CISR, is a senior account executive at Momentous Insurance Brokerage, Inc. Reach her at (818) 933-9860 or email@example.com.
Blog: Get more information on this and other important insurance topics at the Momentous Insurance blog.
Insights Business Insurance is brought to you by Momentous Insurance Brokerage, Inc.