Elizabeth Grace Saunders
A mid a national deceleration in the rate of new commercial loans, your company may need to look to innovative options for obtaining capital. Fortunately, you may already have a virtually untapped class of assets in your reserves: IP. High-profile companies like BCBG Max Azria Group and Betsey Johnson have leveraged their IP to raise tens of millions of dollars. With the right strategy, your company could have the opportunity to do the same.
“With real estate values plummeting and advance rates getting tighter on other assets, businesses are looking to find any kind of liquidity,” says William S. Schwartz, partner in the Banking & Finance Service Group at Levenfel Pearlstein, LLC. “If they can leverage an asset that has not been leveraged yet, they are doing it.”
Smart Business learned from Schwartz about how you can successfully leverage IP and how to determine whether this is the right choice for your business.
Why are businesses leveraging their IP to secure financing?
IP has long been considered ‘throw in’ collateral for banks, and specific funds were not lent against it. Now, companies are starting to realize the value of their IP. In today’s market, anything with value that can be liquidated can and should be considered an asset that can be used to borrow funds.
What companies have done this successfully?
The organizations that have the most success at borrowing against these types of assets have products with brand-name recognition, patents useful to a multitude of businesses and income streams relating to their IP from license and royalty fees.
We are starting to see loans against other IP, as well, but the values of these types of IP are easiest to objectively quantify. In the case of Betsey Johnson, Castanea Partners received $50 million in acquisition financing based on the worldwide strength of the Betsey Johnson brand.
What are the different methods of lending against IP?
Businesses usually have two options for structuring loan agreements involving IP. With the first, some lenders will take actual ownership of the IP and license it back to the borrower. This can work for all types of IP as long as the agreement is properly structured. The IP is then transferred back to the borrower when the loan is repaid. Other lenders will take a conventional pledge of the IP. This usually involves a security agreement or a patent/trademark mortgage.
How can a company determine the value of its IP?
There are appraisal companies that do nothing but evaluate the worth of IP. Ocean Tomo (www.oceantomo.com) is the leader in the field. Just like an appraisal of real estate, an IP appraising company will look at the IP from several different perspectives. These include:
- Comparable examples
- Cost to re-engineer the IP
- Standing of the company in its industry
- Legal protections that are in place with regard to the IP
- Type of competition Based on this appraisal, bank or nonbank lenders will determine how much financing they are willing to offer.
If a business is interested in evaluating this option, how should it proceed?
As with all major financial deals, starting the process early increases your chances of getting the best results. I would say this process typically takes four to six months. The first step is determining if this method of financing is even worth pursuing. A preliminary discussion with the appraiser can help you evaluate if it is a wise business decision to complete a valuation of your IP. Appraisals are not cheap: A basic appraisal from a respected company will run $30,000 to $50,000. Before you move ahead, you have to figure out how much money you need from an IP loan and consider whether or not your IP is valuable enough to get you the capital you need and justify the costs of an appraisal. Typically, advance rates on IP can run anywhere from 25 to 50 percent of the appraised value.
What kind of arrangements will businesses need to make with bank lenders?
I can foresee lending against IP becoming more commonplace within traditional bank lending in a few years. But for now, if you want to get a specific loan against your IP, it’s likely you will need to seek out non-bank lenders. Whether your bank or an outside entity provides the funds, you will need to work with your lender to lift any restrictions on your IP assets. This includes seeking consent to carve out the IP from the lender who holds a blanket lien against all assets. The IP lender will require that it has a first position against the IP. Also, if you have a primary lender, most prohibit outside borrowing of any kind so you will need to seek the lender’s consent before your complete this transaction.
WILLIAM S. SCHWARTZ is a partner in the Banking & Finance Service Group at Levenfeld Pearlstein, LLC. Reach him at firstname.lastname@example.org or (312) 476-7887.
Do your IT projects propel your company forward or slow it down? Do your technical and business functions create synergies or disconnects? Your answers to these questions reveal whether your IT department is aligned with your business objectives.
“Without alignment, IT becomes a cost center,” says Eric Stoll, director of technology at Arke Systems. “But when IT does deliver on business objectives, it positions itself as a business driver and engages as a strategic partner.”
Smart Business spoke with Stoll about the impact of IT alignment and how you can create it in your business operations.
Why is it crucial to align IT with business objectives?
When IT is aligned and engaged, it can act as a business driver and strategic partner. But when this doesn’t happen, IT will stay in a reactive mode that distracts it from efficiently accomplishing business objectives. The goal of IT should be to deliver business capabilities that benefit the company.
What are the potential consequences if they are not in sync?
If IT can’t support key business objectives, this could lead to loss of revenue, missed service-level agreements and lower customer satisfaction. This disconnect can also hurt employee morale when IT professionals feel unrealistic expectations set them up for failure and other employees feel frustrated by ineffective IT systems. But when time and care is put into IT project planning, the end result will prove much more satisfactory to everyone involved in the process.
What does a unified business look like?
With an aligned plan, the business units feel a natural push and pull of productive stress, which drives the whole organization forward. Both the business and IT groups understand the overall company goals and objectives and how they relate to IT. Both parties also agree to company measures of success, such as revenue targets, customer service levels and strategic projects, and know how IT will help the company reach those measures. All IT projects would have a solid business reason or ‘case’ and a business sponsor. The sponsor represents the needs of the business, offers insight and affirms that the IT expense has merit based on the cost benefit analysis.
Continued momentum requires frequent, scheduled, measurable communication between business units. During these conversations, everyone can review an IT ‘scorecard’ that relates IT performance to the company measures of success. This allows for continual recalibration throughout the project.
What processes should be in place?
When the business considers IT a valued partner and involves the department during the planning phase, the business realizes the benefit of alignment. Planning should encompass these core areas:
- Financial: established processes that
account for IT costs and benefits
- Strategic: measurable IT involvement in
achieving business objectives and goals
- Operational: service-level agreements between business units and IT
Project management ensures the proper implementation of the plans and should include frequent, scheduled communication, such as:
- Monthly financial, strategic and operational reviews
- Peer and 360-degree feedback related to
performance and customer satisfaction
- Assessment of the company’s processes and systems by external talent
What are some common mistakes that lead to disconnect between business and IT?
Oftentimes, IT focuses too much on ‘how’ when they should focus more on ‘why.’ Executives aren’t concerned with ‘how’ IT happens, and rightfully so — knowing too much detail could be a distraction. For IT to participate at an executive level, it must speak about IT initiatives in terms of business strategy, which usually means discussing how IT supports each business unit’s objectives. IT must also operate and report performance in relation to these goals in order to be perceived as a business driver.
When IT doesn’t operate in terms of business objectives, other executives may feel frustrated. This could lead them to believe that IT is too costly, that the initiatives aren’t critical, and that IT representatives should be excluded from strategic planning.
How can mistakes be avoided?
Everything really comes back to clear planning, including defined vision, goals, objectives and success measures. The IT plan should relate every part of the project back to the business objectives to demonstrate their measurable positive impact.
Financial planning and management also play a critical role in the process. The ideal set-up has IT costs distributed and paid for by the individual business units. This will drive measurement and push the IT group to perform, especially if the business units can seek external support if they feel IT is not meeting its measurements. Also, the business sponsor of IT projects should control the budget and have accountability for meeting it. This creates checks and balances between business and IT and mutual agreement on spending.
ERIC STOLL is director of technology at Arke Systems. Reach him at (404) 812-3123 x130 or email@example.com.
Whether you’re buying a car, a house or a company, you want to know you’re buying a good product at a fair price. That’s why proper due diligence plays a crucial role in successful mergers and acquisitions.
“I don’t see buying a company as a whole lot different than purchasing a car, a house or any other asset,” says Mark J. Kosminskas, partner in the Corporate Practice Group at Levenfeld Pearlstein, LLC. “You need experts in different areas to ‘look under the hood’ to avoid unpleasant surprises, determine the extent of repairs and identify deal killers as early as possible in the process.”
Smart Business spoke with Kosminskas about what should be included in due diligence, who should complete it and how to accomplish it most effectively.
Why is due diligence a critical process for buyers and sellers?
With sellers, it’s ideal to perform a due diligence review at least 90 days before they go to market so that they can look at their company through the buyers’ eyes. This helps them discover areas of concern and allows them to develop a response to any problems before negotiations begin. Proper due diligence is like running a restaurant — presentation matters. If you’re super organized and aware of any deficiencies, it shows buyers that you’re on top of your game and you mean business.
On the buyer’s side, proper due diligence ensures that the buyer hasn’t overpaid for a company. It also protects the buyer from undisclosed liabilities that could lead to unanticipated expenses in the future.
From both perspectives, identifying material problems as early as possible is important. Mergers and acquisitions are very costly and the earlier in the process any deal breakers can be identified, the better. It’s kind of like dating — it is better to find out on the first date rather than the 12th that the relationship is destined to go nowhere.
What are the key areas for performing due diligence?
Financial: The buyer’s CPA firm usually completes the review of the company’s financials and accounting methodologies. One of the benchmarks for a well-run finance department is that the month-end books should be closed within 30 days. If that can be achieved, it indicates that the company has sufficient staff and efficient procedures, which result in timely access to key indicators for management.
Legal: Legal due diligence involves everything from checking the corporate documentation and records to reviewing loan agreements and contracts, outstanding litigation, and legal compliance.
Operational: This area covers ‘time and motion’ analysis and answers these questions: What does the company do? How does it provide goods or services? How does it sell them? A consultant or an area expert, such as a plant engineer, can review these processes.
Strategic: Good company buyers perform a SWOT (strengths, weaknesses, opportunities, threats) analysis and will not only analyze what they see today but also what they expect to see tomorrow. Potential buyers need to look for synergy and project growth opportunities three, 10 or even 20 years down the road.
What are the areas that pose the most risk or are sometimes overlooked?
It’s important to remember that material problems vary deal to deal and company to company. Where you spend time and money in due diligence is very industry dependent. If you were looking at a 30-year-old paint business with 14 plants across the country, you would want to bring in environmental experts to examine environmental compliance. Conversely, with a software company, you would turn to intellectual property experts to focus on checking your IP rights and protections.
That being said, there are two areas that always stay on my due diligence list:
Capital expenditures: It’s tempting for owners to curtail capital expenditures when they’re planning on selling. If I’m a buyer, I need to not only look at the historical numbers but also project how much cash the company will generate and how much I will need to spend on future capital expenditures. If the owners haven’t kept up on these investments, that will affect what the buyer is willing to pay.
Cultural integration: Even if a company looks great financially, legally, operationally and strategically, it’s really important for managers to do a temperature check on whether it’s a good cultural fit with any existing platform company. If you try to blend a culture that is very team-oriented and mutually supportive with a bunch of individualist mavericks, it’s very likely that the merger won’t go well.
MARK J. KOSMINSKAS is a partner in the Corporate Practice Group at Levenfeld Pearlstein, LLC. Reach him at (312) 476-7886 or firstname.lastname@example.org.
You know you need insurance to protect your business and recover your
real estate, material and equipment investments in case a large loss occurs. But
have you safeguarded your business against
all of the other costs that come in the wake of
an unexpected interruption in operations? If
you haven’t, your enterprise could struggle to
bounce back after a major unexpected event.
“There are numerous ways that a business
can be affected financially from a significant
loss, whether it is from a fire, wind or flood,”
says Tom Russell, senior risk control representative at Westfield Insurance. “Normally
the original cause of a loss is an insurable
event. The major problem for a business continuing operation after a significant loss is the
hidden costs associated with a loss.”
Smart Business learned from Tom Russell
about how to develop a business continuity
plan to minimize indirect costs and quickly
How can a business continuity plan diminish
A proactive business owner will have a
business contingency plan in place to alleviate hidden costs such as expenses and loss of
income from losing key employees and valuable customers. This plan will provide a
means of producing or distributing a company’s product through the use of alternate
inside or outside resources to minimize
short-term and long-term disruption. A well-developed and executed contingency strategy will help a
company to maintain its customer base, retain key employees and continue a cash flow for the business.
How should a company develop this prevention plan?
The management of a company needs to
assess business operations, identify potential
loss exposures and develop a contingency
plan to mitigate the adverse effect of these
loss exposures to the business. This entails
identifying and evaluating critical operations
and formulating contingency plans using
internal and external resources. Once managers identify key outside resources, they
need to develop them so that they can be easily accessed when the large loss occurs.
What are the different types of plans?
There are basically four types of emergency
plans: action guides, response guides, emergency management plans and mutual aid
Action guides are normally in a checklist
format. These guides provide detailed procedures to follow in the event of a large loss,
including information on internal and external resources and how to access them.
Response guides describe the equipment
and facilities that will be required during an
emergency situation. Response type plans
only provide information on the actions that
must be implemented to limit damage from
Emergency management plans are comprehensive programs that include prevention, preparedness, response and recovery
that should take place before and after a
large loss. This plan will include response
plans for each area of potential loss that the
Mutual aid plans are developed through
the participation of companies that agree to
share resources in the event of an emergency
Can you give an example?
A cold storage facility could arrange for a
company to provide portable generators to
its facility in the event of an extended power
outage. This contingency strategy could prevent a company from having a food spoilage
loss. This cold storage company could also
arrange with another cold storage facility to
distribute product to its customers until it is
able to make its own deliveries.
The contingency plan should also include
the safeguard of vital records that will keep
the company operating and generating
income. These records would include:
- Financial — account receivables
- Production — research, engineering,
- Sales — customer records, inventory
- Personnel and general administrative —
employee records, legal and tax records
How should these plans be implemented and
Regardless of which contingency plan is
developed by the company, it should have the
full support of management in both the planning and implementation stages. The contingency procedures should be reviewed on a
periodic basis. This review will verify that the
plan is current and up to date for the company’s present organization and operation.
Also, the contingency plan should include
provisions for sufficient funding and
resources so it can be properly implemented
when an unexpected situation arises.
Hopefully, through a well-developed prevention plan, the response and recovery planning sections of the contingency plan will not
have to be implemented or tested. As previously mentioned, a comprehensive, well-managed prevention program will reduce
expenses and disruptions to the continuation
of any business.
TOM RUSSELL is a senior risk control representative at the Cincinnati service office of Westfield Insurance. Reach him at (513)
985–9080 x218 or email@example.com. Westfield Insurance provides commercial and personal insurance services to customers in 17 states. Represented by leading independent insurance agencies, the product we offer is peace of mind and our promise of
protection is supported by a commitment to service excellence. For more information, visit www.westfieldinsurance.com.
There’s money out there waiting for just the right opportunity. Could it find what it’s looking for in your business?
“With the slowdown in the market, private equity funds have been holding back slightly, which has them accumulating reserves,” says Philip E. Ruben, a partner in the Chicago law firm of Levenfeld Pearlstein, LLC. “But private equity funds must invest to provide the needed returns. If business owners can’t obtain capital for growth, expansion or acquisition through traditional financing, then their first alternative should be seeking out private equity.”
Smart Business spoke with Ruben about what types of businesses typically receive private equity, how to prepare for investors and how to overcome challenges in the process.
What makes obtaining private equity (PE) difficult for business owners?
Many PE funds have specific investment criteria that business owners must meet for a match to happen. Also in today’s marketplace, PE funds are really looking for ‘interesting’ companies. Unusual niche businesses, like extremely high-end denim retailers, can attract PE capital. Also industries with fast, dramatic growth, like metal companies, where returns have suddenly jumped from 10 percent to 25 percent, have a good chance of acquiring funding through this channel. Run-of-the-mill companies and those looking to refinance existing debt aren’t currently attractive to PE funds.
Business owners need to be able to clearly demonstrate that they have strategies with real growth potential and the ability to add real value. These include organizations that can move manufacturing overseas to improve margins or those that can use their specific expertise to create significant increases in revenue and profits.
Lastly, the due diligence process can be very taxing, costly and distracting. Most business owners have not been through the process before, and it ends up taking them away from their operations. While this can be an educational process for the owner, it can be frustrating if it doesn’t lead to a transaction.
Why can private equity still be an attractive financing option?
PE fund investors have much more flexibility than standard and investment banking financers. This means they can complete deals that traditional investors could not. Also, depending on the industry, the size of the company and the nature of the fund, PE can provide appropriate leverage. PE funds can step up to complete deals in industries like health care, financial services and technology that require high levels of equity.
When should companies pursue funding?
Business owners should start looking into PE in their planning stages, preferably up to a year before they need it. Conducting a search for the right fund is not necessarily a difficult process, but opening the right doors can require persistence. By extending the timeline, business owners help to create a competitive market for the capital, reduce the stress created by imminent need and keep an even leverage in negotiating the terms of the deal. PE fund managers know about business owners’ needs and timing and will use this to their advantage if there is a high, urgent need for funds.
How can businesses prepare themselves for investors?
Individuals seeking capital should have a strong management team and an advisory board of directors composed of outside industry professionals who will give their honest opinions to assist in all phases of the process. Business owners also need to prepare themselves to disclose both good and bad reports on a timely basis.
What else increases a company’s chance of success?
Business owners should have detailed business plans, projections and growth strategies. This includes disclosing the risks and downsides of their operations. PE funds don’t want surprises nor do they want to find out information from outside sources.
During the process, business owners also need to make sure to stay focused on the business and not to let the process distract them too much. Using professionals to guide the transaction helps everything to run smoothly.
How can a lawyer help facilitate the process?
The right lawyer can act as the ‘quarterback’ in the process. To successfully handle these responsibilities, the lawyer needs to understand the client’s business needs and goals, be creative and know the marketplace. The lawyer also needs to be direct and open about expectations. Valuations have changed due to lowered returns so sellers need to have a realistic understanding of current market pricing.
Lawyers can help clients structure the transactions, which may include contingent or special consideration arrangements. Legal professionals can also assist business owners with understanding earn-outs, tax implications, consulting agreements and other equity structures.
PHILIP E. RUBEN is a partner with the Chicago law firm of Levenfeld Pearlstein, LLC. Reach him at firstname.lastname@example.org or (312) 476-7599.
An effective and efficient performance evaluation process has the potential to not only spur productivity but also boost employee morale.
“When done properly, performance evaluations can be effective planning tools and provide important feedback for all involved,” says Carol Brinkley, vice president of work force services and consumer affairs at Tampa Bay WorkForce Alliance (TBWA). “Promoting an attitude of progress can help your employees feel like they have achievable goals.”
Smart Business asked Brinkley about the impact of performance evaluations and how to make them relevant, productive and meaningful for your staff.
Why do many people have a negative view of performance evaluations?
Performance evaluations can be intimidating, but they don’t have to be negative for employees or managers. Most employees want and need feedback, but they also desire to be engaged in the process and receive update reports throughout the year. An issue far too many managers have is not asking for input from the employee prior to drafting the evaluation. Managers should communicate with staff on an ongoing basis and solicit their input on goals, accomplishments and areas they have improved. They should also ensure that important issues relating to performance are addressed throughout the year to give employees the opportunity to modify weak areas. An employee who hears of the things he or she could have done better during the prior six months in a single review can be overwhelmed and discouraged.
What can be the consequences of a weak performance review process?
A poor performance review process can affect the bottom line. Lost time, turnover and low morale can stem from a stymied evaluation system. Often, high performers require less attention. However, they too deserve positive feedback to feel valued and appreciated. On the other hand, employees who need more coaching throughout the year may have lower productivity and feel unable to meet your expectations. Constant communication is essential to building trust and building employee morale and confidence.
How can employers make evaluations more relevant and productive?
Be substantive and qualitative. Giving general feedback does not present a clear picture of your expectations. Use specific examples to illustrate your points when identifying areas of improvement and when praising them. Managers should incorporate time regularly for recording employees’ successes and track weak areas. When the time comes for a performance review, you will have had a good balance of successes and areas of improvement or goals to discuss. To sound cliché, this is an area where honesty is the best policy. If you are honest about the positives and negatives all along, a factual review will serve to coach and motivate an employee.
How often should employers complete performance evaluations?
Performance evaluations are meant to provide a meaningful overall assessment of an employee’s performance and ensure everyone is on the same track. At a minimum, evaluations should be done semiannually. Performance management, however, is an ongoing communicative effort between management and employee. There should be a constant dialogue that links expectations and ongoing feedback with coaching, development planning and follow-up.
Should promotions and incentives be tied to these reviews?
Succeeding in today’s competitive marketplace requires buy-in from all employees. Incentives aren’t a cure-all, but they incite staff to meet specific goals and business objectives. Performance reviews are a helpful tool to methodically approach promotions and incentives that are tied to goal setting. Remember that if an employee is excelling, managers don’t have to wait for their review to reward them through a pay increase or promotion. There should be opportunities throughout the year for motivating and rewarding good performance.
Any tips for reducing the time spent on reviews?
Reviews are perhaps the most challenging task for managers. Keep notes throughout the year of accomplishments as they happen. Remember to give your feedback to staff on a regular basis, positive and negative. There should be a continuous loop of planning, coaching and providing feedback. Critique a project as it is unfolding instead of waiting for the end result. Provide encouragement when performance seems to be less than expected and set clear goals and expectations so that when the employee is not on track, he or she can understand a less favorable critique. The semiannual review should merely be a process of compiling and summarizing previous observations made to the employee. This process will save time to draft the review, offer more feedback and eliminate surprises.
CAROL BRINKLEY is vice president of work force services and consumer affairs at Tampa Bay WorkForce Alliance. Reach her at (813) 740-4680 or email@example.com.
Trade secrets are those “proprietary and confidential” processes, formulas or technical details that give businesses a competitive edge. Most successful companies invest significant amounts of time and money in creating these market differentiators.
“When you’re buying or selling a business, it’s critical to find out whether legally protected trade secrets actually exist,” says Gary Blackman, a partner with the Chicago law firm of Levenfeld Pearlstein LLC. “Otherwise, a seller is at risk of representing it owns something it doesn’t and a buyer is at risk of paying for something that doesn’t exist.”
Smart Business learned more from Blackman about how both buyers and sellers of businesses can confirm the existence and value of trade secrets and protect themselves throughout the process.
What is the legal definition of a trade secret?
Most states define a ‘trade secret’ as something that is sufficiently secret with some economic value. This could include a formula, device, method, technique, drawing, process, financial data, or even a list of actual or potential customers or suppliers. In other words, your business is worth more because your competitors don’t know what you know, and you’ve taken the necessary steps to prevent others from acquiring or using the information.
These steps could include: creating a confidentiality policy; maintaining trade secrets on computers and identifying them with warning screens that require passwords from those who access them; labeling documents as ‘Confidential Trade Secret. Do Not Copy. Do Not Distribute’; storing trade secrets in a secure area, such as a locked file cabinet, drawer or safe; and requiring your employees to sign confidentiality agreements that specifically identify the trade secrets.
How do trade secrets differ from patents, trademarks and copyrights?
Trade secrets operate outside the framework of copyright, patent and trademark law so there is no recognized registration processes. Though most states have adopted some form of trade secret legislation, the statutes only provide guidance. Trade secrets are a bit like mercury — both static and ever-changing. One day something can be a trade secret and another day it is not, depending on the owner’s actions. Unfortunately, the courts ultimately make determinations on trade secrets, which is why they are often difficult to identify, value and buy or sell.
Why are trade secrets an important issue in mergers and acquisitions?
In the context of a merger or acquisition, trade secrets are often assets that contribute to the value of an entity being bought or sold. Not unexpectedly, this is often more important to the buyer who is paying for that value than the seller. No one wants to pay for something that doesn’t exist or can’t be legally protected. In some cases, a buyer will significantly rely on the existence of a trade secret, in other cases it will not.
It really depends on the nature of the business and each side’s expectations and risk/benefit analysis. A buyer primarily concerned with a ‘proprietary and confidential’ process or customer list will want to spend more time on this issue than someone more interested in buying patents, trademarks and copyrights. A seller, on the other hand, should be concerned with whether it is representing that it ‘owns’ something of value that it does not, which can possibly subject it to post closing legal liability.
How can both sides protect themselves during negotiations?
A good seller’s lawyer will want to limit a seller’s trade secret representations, requiring instead that the buyer does its own due diligence, as opposed to relying on the seller’s opinion.
Conversely, a good buyer’s counsel will require that the seller specifically identify the trade secrets and make affirmative representations as to what was done to create and maintain the trade secret. This is important because inadvertent disclosure or the failure to keep something confidential can turn something that once was trade secret into something that can no longer be legally protected. Where possible, a buyer should: obtain an assignment of the seller’s rights under employee trade secret agreements for employees knowledgeable about the acquired trade secrets, identifying such agreements both by category and specific listing; seek an assignment of all other rights, contractual or otherwise, necessary to protect the buyer’s rights in acquired intellectual property assets; try to ensure that no records — or other material aides to reconstruction of the acquired trade secrets — are left behind with seller employees; and require the seller to instruct employees to surrender such records and materials.
A buyer may want to provide himself or herself with various legal remedies in the event that something that the seller represented as a trade secret is not one. This could include the seller paying back the value of this intellectual property.
GARY BLACKMAN is a litigation partner at Levenfeld Pearlstein LLC. Reach him at (312) 476-7536 or firstname.lastname@example.org.
You think your suppliers and business
partners have the proper insurance, but
can you prove it? Obtaining certificates of insurance from anyone whose product or
service could contribute to the filing of a business claim documents that you’re covered.
“Certificates provide evidence of insurance
if you need to reach out to that insurance in
the event of a claim,” says Jim Montgomery,
business sector leader in the commercial
underwriting office at Westfield Insurance.
Smart Business spoke with Montgomery
about using certificates of insurance as part
of your risk management strategy.
What is the purpose of these certificates?
Certificates of insurance are primarily used
in place of complete copies of insurance policies to provide concise, inexpensive evidence of insurance. They provide a more efficient method of conveying information in
one page as opposed to a full copy of the contract, which can be 40 or 50 pages long. The
certificate is a broad generalization of the
insurance coverage carried by the provider
of the certificate. It lists the insurance company or companies and the type of coverage,
such as property, general liability, business
auto coverage, workers’ compensation, etc.
It may also list some of the policy endorsements that extend or limit coverage.
What are the consequences of not having
them on file?
It is important for business owners to know
the extent of their financial responsibility in
the normal flow of business. A seller of a
product made by a third party is not normally responsible for failure of the product if it
causes injury. But if the actual manufacturer
of the product does not have insurance, as
evidenced by a certificate of insurance provided to the seller, the seller may have to
assume that financial responsibility. Companies can still attempt to press a claim against
a business that originally caused the issue.
But without the proper documentation that
includes details about the carrier and the coverage, the attempt to transfer risk could fail
or prove very time-consuming or costly. This
could not only add significant costs related
to a particular incident but also increase expenses to the insurance carrier, which could
lead to higher premiums over time.
Who needs to have them on file?
Evidence of insurance is an important consideration for any business, so all companies
should have these documents on file.
Restaurants serving food need to know their
food providers have the appropriate insurance in the event of a claim involving food
that made someone ill. Manufacturers need
to know their raw material suppliers have
appropriate coverage for the products that
they deliver. Developers of a building project
need to be certain the general contractor
responsible for completing the project and
working with subcontractors has the coverage required by the construction agreement.
When should companies request them?
Certificates should be requested at the very
start of a business relationship where one
party provides a product or service to another party. It is important to understand the
types and limits of insurance available to the
provider in these relationships. This is especially important if there is a formal contract
or purchase order that requires specific
insurance coverages. Obtaining a certificate
of insurance could become part of the procedures for finalizing contracts in a company.
Also, business owners who request certificates of insurance should do so with the
agreement that a replacement certificate will
be sent each year on the expiration date of
the insurance policy. Receiving an updated
certificate lets companies know that the
proper insurance is still in effect and alerts
them to changes in policies, limits and any
other significant modifications to coverage.
Who can issue certificates of insurance?
Insurance agents or brokers representing
their policyholders can issue them. The insurance carrier has no responsibility for issuing
these documents, so it’s very important that
businesses take a proactive approach to
requesting them from any businesses or individuals that provide products or services.
Can certificates be issued electronically?
Yes. There are a number of programs
offered by independent vendors or agency
management systems that will assist in the
electronic management of issued certificates.
What should companies do in addition to
requesting a certificate?
It is important for any party to the certificate process to understand the potential limitations. A certificate will only acknowledge
the coverage currently on an insurance policy. If an agreement is signed between two
parties there may be additional insurance
requirements. Business owners should make
their insurance advisers aware of contracts
or agreements so the proper coverage on
both ends is in place.
JIM MONTGOMERY is business sector leader in the commercial underwriting office at Westfield Insurance. Reach him at
JimMontgomery@westfieldgrp.com or (330) 887-0642. In business for more than 160 years, Westfield Insurance provides commercial
and personal insurance services to customers in 18 states. Represented by leading independent insurance agencies, the product we offer
is peace of mind and our promise of protection is supported by a commitment to service excellence. For more information, visit
Once you sign on the dotted line, you have committed yourself and your business to a space. Effective industrial real estate negotiations help to ensure you can happily live with your decision for years or even decades to come.
“It’s critical for any type of company industrial or otherwise to carefully negotiate and plan its contracts or leases for space,” says Greg Haynes, senior vice president of industrial brokerage services at CB Richard Ellis, Atlanta. “Not preparing leads to poor performance, including potential immediate and future effects on the company’s profitability. While it is virtually impossible to cover every unforeseen circumstance, a carefully designed plan can mitigate mistakes.”
Smart Business spoke to Haynes about how to avoid a poorly negotiated industrial space lease or contract by carefully executing proven negotiation strategies.
What advantages result from effective negotiations?
Certainly, cost savings is considered the chief measurement of an effective negotiation. The tricky part is defining cost savings. Does it mean the lowest cost of occupancy measured strictly by the rate per square foot the occupant pays? Or does it include a much broader analysis, which factors in incidental costs that may not show up in the lease rate? Being an effective negotiator entails much more than locating space with the lowest rate. However, it doesn’t hurt to know where to find bargains. Making sure that they really are good deals is the key.
How can businesses position themselves for success?
Businesses should keep up with the market conditions for their type of space on an ongoing basis, not just the year prior to their lease termination. Although not quite as volatile as the current stock market, the real estate market can have spikes. If you have the flexibility to take advantage of conditions when they are soft, you can experience many happy returns down the road.
If you know you are going to have to expand your space needs within a certain period of time, you might even consider an earlier move if the current market conditions are conducive. Don’t bet your business on a premonition that the current low rates will remain low or will go even lower. Lock in the good deals now.
What leads to the most beneficial agreement?
The most beneficial agreements are ones that are reasonable, fair, planned and allow for the maximum flexibility. The most interaction that a tenant should have with a landlord is the initial negotiation. Knowing your landlord too well may mean that your tenancy is not going as expected and that there were too many unanswered questions going into the relationship.
Choosing the right broker for the assignment can also be critical in the overall success of the process. Companies should interview three brokers before choosing one based upon his or her knowledge of the market and overall real estate expertise. That includes knowing the range of rental rates that a tenant can expect to pay, as well as other associated costs, such as taxes, insurance and common area maintenance. If the market is in a certain rate range, clients should expect to pay a rental rate in that range no matter how good of a negotiator they hire. However, a knowledgeable broker could know why one location is a better long-term choice.
What tactics can increase companies’ control throughout the process?
The best way to increase control is to understand control. One of many ways to exercise control is to set realistic goals and be willing to live with the results. Also, it’s fundamental for a tenant not to give buy signals upon inspecting the space. A good broker can coach a tenant in those subtle nuances. The best way for a tenant to proceed is to make few comments, and ask a lot of questions. Knowing the right questions to ask also saves time. Increasing control is tantamount to increasing competition for your business.
What should businesses never do in industrial space negotiations?
If the landlord senses that you’re out of options for renewal or otherwise or receives other vital information, he’ll stop before he reaches his bottom line and say: ‘We have this deal and don’t have to go any lower or make further concessions in rent or tenant improvements.’ Avoid any potential slip-up by having a central point person for communication with the landlord, typically your broker. You might have the best operations person in North America as your employee, but he or she should never be talking directly with the landlord or the landlord’s broker.
Another key point to remember is that what you clearly see straight ahead is not the likely outcome; but rather, the final result is usually one on the periphery. Stay open and flexible throughout the process. You should always be willing to consider new alternatives that could offer as good, if not better, a result than the ones you originally had in mind.
GREG HAYNES is senior vice president of industrial brokerage services at CB Richard Ellis, Atlanta. Reach him at (404) 923-1436 or email@example.com.
Vibrant business communities with a strong work force don’t just happen they’re created by intentional planning and development. Your organization has the responsibility of helping the communities in which it does business to grow and benefit from your contributions.
“The economic development of Tampa Bay depends on ensuring that we have a skilled and trained work force to meet the growing demands of business,” say Angela Rosario, community relations manager, and Rick Gonzales, general manager, of Jobing.com Tampa Bay.
Smart Business asked Rosario and Gonzales how corporate social responsibility benefits work force development and employee morale and how you can get involved in the Tampa Bay area.
How is giving back to the community an investment in your work force?
We believe that there is a delicate balance. The investment in the community should go hand in hand with your business objectives. It should help people take a look into their future, provide information that can help them to become better job seekers, and help steer them toward careers that both fit their personal passion and fulfill the needs of tomorrow’s business. By proactively addressing work force issues through community investment, companies help ensure that they have access to a consistent flow of skilled individuals to meet their staffing needs.
How does social responsibility have a positive impact on employees?
Studies have shown that companies that support their communities by encouraging employee involvement often have higher employee morale and retention rates. People want to make a difference, and they feel more loyal to their employers when they can partner with them in community service.
Companies engage their employees through various means. They can support their volunteer activities, educate and authorize them to become brand ambassadors who educate the community about the company’s mission, or financially contribute to programs, events and activities that match the company’s mission and core values.
How can companies effectively demonstrate social responsibility?
We believe that when an organization focuses social responsibility efforts toward mission-driven activities, there is a greater impact as well as an investment in the local work force.
One of our favorite examples is supporting the fundraising efforts of organizations that have a high impact in the community. The Chloe Coney Urban Enterprise Center, for example, is due to be completed in late 2008, and will be a state-of-the-art Center to enable the CDC of Tampa to enhance services in the East Tampa community and the region as a whole.
The CDC of Tampa is an experienced landlord, managing commercial projects and community-based facilities at multiple locations throughout East Tampa. It currently maintains a staff of 14 full-time employees and 12 part-time contractual personnel. Since inception, it has leveraged more than $40 million in public and private ventures to the community.
Do you have any other specific Tampa Bay-area examples?
Jobing.com has been honored to participate in groundbreaking events throughout Tampa Bay. We support events that facilitate the celebratation of cultural diversity and highlight how working together benefits the economic development of our community. Local organizations are welcome to participate in, for example, the International Business Summit, which is a collaboration of area chambers of commerce and helps participants gain a greater appreciation of the rich cultural flavors in the region and a deeper understanding of how to use a competitive advantage in businesses.
How can businesses involve their employees in corporate responsibility?
Community spirit, including supporting non-profit and community organizations, should be a core value in your business. This commitment should be demonstrated through the organization’s use of resources. Your business, for example, could allow employees to dedicate paid time toward community service activities. Another option is allowing them to use flexible scheduling or use of personal time to assist at volunteer events that take place during the day or work week, such as school activities. Volunteer service is a source of pride for employees. Companies should also share their financial success with the local community through a variety of support, specifically focused on work force development and non-profit community organizations. Participating in employee gift matching programs is another way for a company to involve employees in giving back to the community.
Companies should utilize their work force as passionate spokespersons in the community, demonstrating their company’s commitment and social responsibility to Tampa Bay.
ANGELA ROSARIO, PHR, is community relations manager and RICK GONZALES is general manager at Jobing.com Tampa Bay, a local job search resource. Reach them at (813) 649-8411, angela.rosario@Jobing.com or rick.gonzales@Jobing.com.