What to consider before selling, exiting your company

All business owners eventually face the tough, unavoidable task of deciding how to transition out of their company.

“Exiting a business is a major step that requires years of preparation to execute in a way that leaves owners confident with the future legacy of the company they have built over many years and with enough income to carry them through the next stage of life,” says Jim Altman, middle market Pennsylvania regional executive at Huntington Bank.

He says making the best decision requires seeking advice from those with different points of view on the best strategy, rather than relying on emotions to guide the decision — a fault of many in the position. But the key is to evaluate the objectives that matter most for owners and their families, and to prioritize a plan accordingly.

Smart Business spoke with Altman about exit planning, and options available to owners once a liquidity event occurs and is complete.

What are the more common ways in which business owners exit their companies?

For owners who have family members working in the business who are experienced and qualified to run the company, it’s logical, as one viable option, to transfer the business to them as part of a generational transfer. But sometimes emotions tied to family supersede making the best business decision, and an owner may decide to transfer ownership to a family member who isn’t ready. That decision often puts the company’s future in doubt.

Selling to an independent party offers one attractive option to consider and the most often used for owners to seek a competitive bid and maximize their return. This also allows the seller to receive immediate funds after a sale if no seller note is involved.

Another option is to sell the company to employees under an employee stock ownership program. After tax considerations, it could be one of the most lucrative choices for owners and most favorable to employees. It also creates an opportunity for family to have an ownership stake in the business while the owner can continue to draw money out of the company over time in the form of a seller note or ongoing management fee.

The main thrust for owners is to understand their priorities. It could be important to some owners that family stays attached to the business. Other times, owners could prioritize getting the most money they will use to fund retirement or their next investment. All that matters is that owners consider what is in their best interest and have a plan to achieve it.

Who should be part of the discussion as business owners consider their exit strategy?

There should be at least a trio of people involved: an accountant, legal adviser and banker. All three bring slightly different, but very valuable, perspectives.

Additionally, exiting owners should seek opinions from other people in their network who have sold companies and ask them how they came to their decisions, what happened and whether they’d do anything different. Even if the choice is clear, it’s still a good exercise to understand the pros and cons of each option. This is likely the only time business owners will sell their company, so it’s critical to gather as much information as possible during the process.

What should business owners consider about what happens after the sale event?

Owners should consider their next-stage investment strategy while they put together an exit plan. Too many owners don’t consider that. A full financial plan can help determine the best investment strategy and it will account for the individual’s priorities — whether it’s an immediate return so there’s money to spend on living in the moment, or having money to pass to the next generation.

There will come a time when owners can no longer run their business. Start planning the exit well ahead of that time. Consider the succession of the business and what to do with the proceeds. Revisit the exit plan annually and make adjustments when circumstances change. Seek out the opinions of many people, especially those who have sold their companies, and don’t let emotion trump best judgment for all in the long run.

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Customer trends require technology to leverage

Even in a world dominated by digital technologies, some companies still hesitate to adopt tools that could take their business to the next level. That’s often preventing businesses from engaging in developing customer trends, most of which increasingly rely on digital technologies to leverage.

Smart Business spoke with Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank, about some burgeoning digital trends, as well as strategies to take advantage of them.

What digital transformation trends are taking hold?

Companies today are using personalization to differentiate customer experiences. The experiences customers want differ based on who they are and what they need. With greater personalization and customization, companies can segment their approach so that narrower customer segments get catered products, experiences and services.

Unlocking the collected customer data companies hold goes a long way to understanding the uniqueness that a business can provide its customers. Every company collects a great deal of customer data, but many don’t use that data to drive experiences. It’s important that companies learn to analyze the data that they capture, in part so they can drive more personalized experiences.

Another trend has companies creating ecosystems that serve as a platform for broader interaction, either between a company and its customers, or with customers and other companies. Companies are starting to figure out who they need to partner with — often because those partners work outside the company’s first line of expertise — to provide value to their customers, in part by offering multiple services in one place.

Why might businesses hesitate to adopt newer technologies?

Often business leaders, when presented with a new technology, aren’t eager to employ it. They may understand that the tool offers a more efficient way to perform a task, but they resist, instead relying on the way they’ve always done it because, in their mind, it’s easier.

Additionally, as more applications are based in the cloud, some companies avoid using them because they are uncomfortable relying on cloud services. That’s typically out of concern for security, as some companies believe the cloud is not as secure as software hosted on on-premise servers. While this might seem to them like a prudent risk mitigation strategy, it often means the company misses out on opportunities to save costs through increased efficiencies, or to better connect with customers.

Overcoming that requires educating leadership about the pros and cons of cloud-based applications, making communication key. It takes working with someone who is able to explain the applications, how they work, and how to establish procedures that mitigate as much risk as possible.

Once the benefits and risks are clearly communicated, businesses should start small. For instance, use one cloud application to begin with and work into more as the organization gets more comfortable. Companies tend to think they need to move all applications to the cloud at once. But starting small can help the initiative gain credibility at all levels of the business, which instills confidence and helps the organization move to the next stage. The process can begin by creating a transition plan that identifies specific applications to move to the cloud one at a time. Once most people are comfortable, it can really take off from there.

How can companies mitigate technology risks?

A lot of risk can be mitigated by working with external partners. For example, there are a lot of fintechs that have created niche businesses that can help companies in very specific areas. For companies facing a risk that’s outside their comfort zone, partnering with one of these up-and-coming companies that have mastered a specific functionality where that risk is found can help mitigate security concerns while connecting with valuable expertise.

Look for ways to partner with entities that have expertise and have already assumed certain risks. There are so many businesses that specialize in certain areas that companies often don’t need to develop products, software or procedures internally because specialized partners can do it quicker and with less risk.

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Is your business ready for the Great Recovery?

This year could be the year of the Great Recovery as industries battle back from a tough 2020. There are big earnings growth expectations in the areas of consumer discretionary spending, energy, financials, industrial, and basic material.

However, while the recovery is in motion, businesses are facing pressures in the areas of supply constraints, elevated input costs and labor shortages. How they deal with this margin pressure will reflect on their 2021 earnings statements, and beyond.

Smart Business spoke with Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank, about the macro-economic factors businesses should be watching as they work through what should be a recovery year.

What’s driving inflation concerns?

The components to inflation are commodities, wages and owners’ equivalent rent. Wages and real estate have been fairly well-behaved, maybe slightly elevated. But the reason for this spike in inflation is because commodity indexes are up 66 percent over the past 12 months.

The Federal Reserve thinks this spike in inflation will be transitory, but that’s not necessarily the consensus view. Companies have pricing power and keep raising prices, and wages are going up at the low end, which also could continue. Together, these factors have the potential of making inflation stickier than the Fed thinks it will be.

The Fed has also expressed that this inflation can be attributed to the reopening of the economy, causing supply chain and labor concerns — labor not being at the right place at the right time. The sense is they think once companies sort out those supply chain issues and labor gets back to where it needs to be, which they expect will be by the fall, inflation will move noticeably lower, back to the 3 percent range from the current 6 percent range.

What’s happening with commodities and labor?

Most businesses are buying additional supplies of the commodities than they use — buying three months’ worth rather than one. That’s a normal reaction to inflation, which at the moment is very broad-based. Many continue to wonder when prices will come down enough that businesses stop hoarding.

Part of the labor shortage can be attributed to a mismatch between the skills needed and the skills workers in the market have. This is especially prevalent in the goods-producing industries where U.S. consumers have continued to spend in robust amounts.

The focus of labor is now in the service industries as they reopen. Many former service-sector employees moved to the goods sector over the past year and may not return. That’s why many companies in the reawakening service industries find themselves in a position in which they need to find machines to replace the shortage of labor.

Something else to watch, the Bureau of Labor Statistics’ June JOLTS found that more than 3.9 million employees voluntarily quit their jobs in April. This is, by far, the largest number for this data series started in 2000. So now not only do companies have to spend resources to recruit, they’ve got to spend resources to retain.

What should businesses discuss with their bankers?

Businesses are keeping a close eye on their revenue versus margin. Revenues generally are increasing now, but margins are tightening because of input costs, supply constraints and labor shortages. Much of the conversation is around whether revenue increases are offsetting the margin increase and how long that can be sustained.

Businesses also want to know if their balance sheet is in the right place now that they’re on the other side of the pandemic. They should look to take advantage of low interest rates and lock them in, then look ahead to ensure they have enough cash flow to cover the potentially increased level of debt.

There is a lot to be optimistic about. But margin pressures are enough of a concern that businesses should talk with their banker about all three financial statements — earnings, cash flow and balance sheet — to ensure they’ve got strategies in place to profitably grow over the coming years.

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Life insurance as a risk management vehicle to preserve company value

The role of life insurance as a financial protection policy for families is well understood. Life insurance as a risk management tool designed to protect the value of the business, however, might not be as well known.

A company’s value, especially in small and mid-sized companies, can be tied to the owner or a single executive and their ability to manage the business. That makes protecting the business from their sudden demise or inability to work critical; otherwise, the company can’t continue to provide for the people who have come to rely on it.

“Small and mid-sized companies need a mechanism that helps them deal with the death or disability of shareholders and key individuals, both of which are foundational to the company’s ability to perform and maintain company value,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank.

Smart Business spoke with Altman about life insurance, and how it can preserve company value in the event of the unexpected loss of a key individual.

Why is life insurance important for companies?

Business owners and key executives are a wealth of information in their organizations. But the size of their organization typically limits the size and depth of the management team, meaning there are fewer people with whom skills and organizational knowledge can be shared. That compartmentalization creates risk in a company. Life insurance, in this scenario, would serve as a safety net, replacing the monetary value of what that key person brings to the company while giving the company time to adjust and replace the person in the event he or she is unexpectedly lost.

Another common protective application of life insurance is in situations involving multiple shareholders. In the event that one shareholder dies, life insurance becomes a funding mechanism for the remaining ownership to purchase the deceased partner’s shares. Without this protection, the existing shareholders or the company may be forced to buy the shares with their own cash, depleting valuable liquidity unnecessarily.

Life insurance is also useful for risk mitigation. In some instances, a bank may require a company to have an insurance policy in place to cover the value of a loan to ensure it gets repaid if a critical member of the business passes away. That requirement is more common in early stage companies that don’t otherwise have the collateral to cover a loan.

In what ways can a corporate life insurance policy benefit larger companies?

The application of life insurance in a larger company is really more about the creation of an alternate funding mechanism. Businesses are looking for tools to attract, retain and reward key executives. One method is to set up nonqualified deferred compensation plans that trade enhanced retirement benefits for an executive’s commitment to the organization for a set number of years. A life insurance policy can be a method of funding that long-term obligation. This approach is appealing because it’s balance-sheet neutral and also offers a tax benefit.

Corporate-owned life insurance can be bought for a set number of people with no medical underwriting. Corporations also like that it doesn’t have any surrender charges.

What is important for companies to consider as they design people-centered risk management strategies?

Companies should work to identify and understand their most significant risks. It’s important that business owners take time to consider what could diminish the value of the business. To that end, it’s critical to determine who are the people driving operations and what is being done to protect the business should they become unavailable for whatever reason.

Organizations that have multiple shareholders should review the financial obligations that would arise in the event of the death of a shareholder, specifically whether any existing insurance is structured in a way that provides the remaining shareholders or the company with the cash to buy those shares.

It can be a hard discussion to have, but the company’s risk position in this regard should at least be reviewed every three to five years, or whenever there is a significant change to the business.

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Should your 401(k) have socially responsible investment options?

The meaning of the term socially responsible investing (SRI) continues to evolve as 401(k) plan participants look to align their investment portfolio with their values. More conversations around environmental, social and governance investing (ESG) are happening. And that’s coming not just from the youngest generational demographics in the workforce but from all generations.

“Interest in ESG investing is broad,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank. “Plan participants of all ages are asking more questions about how companies behave, their impact and their intentions.”

Smart Business spoke with Altman about socially responsible investing and what employer plan sponsors should know.

What is socially responsible investing?

SRI had typically been concerned with a couple things. One is negative screening, something that’s most common with faith-based organizations — they might decide they won’t invest in companies that deal in tobacco, alcohol or firearms, for instance. The other dealt with environmental concerns and is what most people think about when they think about SRI. But environmental concerns don’t just mean solar panels and windmills. SRI now also includes environmental, social and governance investing (ESG), which puts the focus on those elements, though each area of interest can mean something different to each investor.

What should employers know?

While some employer plan sponsors might be eager to include ESG options in the portfolio to capture the interest of socially conscientious investors, there is good reason to approach the initiative with caution. Adding ESG options to a plan could signal to some that the employer’s belief system is showing itself in that decision, and that has ramifications. Plan sponsors that constrict investments to only ESG options could find themselves the target of criticism by plan participants if the investments are seen as politicized or impinging on someone’s religious views.

The best approach is to think in terms of complementary strategies. Don’t get rid of a fund in a lineup just to add an ESG option. Instead, introduce ESGs as new offerings that complement the existing plan.

It’s also a good idea to have an open conversation among stakeholders about changes to the plan rather than leadership making the sole decisions. Be collaborative and document the process to defend the position that’s reached regarding ESGs.

How might ESG investment options affect plan performance or participation?

There tends to be a negative connotation of how ESGs affect plan performance, mainly because of embedded SRI ideas that, at their extreme, completely exclude certain industries, such as fossil fuels. Adhering to such a strict portfolio could lead to underperformance. However, as ESG ideas have progressed, it’s less about excluding industries or companies and more about considering the direction of those businesses. For example, a fossil fuel company might pump oil but its R&D for wind, solar and other sustainable sources of energy are on the cutting edge.

Participation in employer-sponsored plans hasn’t shown a dropoff when a plan lacks ESG offerings. Part of that has to do with the fact that most plan participants use the default vehicles — target-date funds for example — when they enroll in a 401(k).

How have asset managers adjusted their plan offerings to accommodate socially responsible investing?

Asset managers that sponsor 401(k) plans are becoming more ESG-minded. Some are integrating ESG options into all funds almost by default. There could soon be ESG-dedicated strategies as well as plans in which ESG options are integrated with more mainstream options. Increasingly, the demand for ESG is there from a participation standpoint, but not all asset managers have brought those options into their plans.

ESG investing is a growing and worthwhile discipline in investment management. Employers shouldn’t be afraid to tread into this area, but should do their research before acting.

Insights Banking & Finance is brought to you by Huntington Bank

COVID highlights resilience, creativity of small businesses

America’s small businesses have been particularly hard hit by COVID, the impact of which has been unprecedented in the sector. Early statistics from the National Bureau of Economic Research are showing that as many 22 percent of small businesses have closed.

“The average small business doesn’t have a rainy day fund,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank. “They don’t have a tremendous amount of liquidity to fall back on in the event of an emergency.”

But as we enter what seems to be the final innings of the pandemic, small businesses have also proven their resilience through creative pivots and leveraging community resources. And there’s some speculation that there could be a post-COVID boost in small business creation.

Smart Business spoke with Altman about small business survival tactics and how the COVID disruption could lay the groundwork for future ventures.

How have small businesses pivoted to stay afloat?

Small businesses have had to focus on client preference in order to keep their heads above water. A good example of this has been restaurants and grocery stores offering pick-up or delivery services so that they could fulfill orders for customers concerned about in-store shopping and dining.

A lot of small businesses have looked at ways to get their message out with social media, and have leveraged digital options to keep business flowing. Restaurants, for example, have turned to their websites to highlight their offerings, and many have used smartphone apps to arrange for curbside pickup and even touchless payment.

There’s been a significant acceleration in digital migration during the pandemic by many businesses. It will be interesting to see which digital changes small businesses keep around well after the virus is contained.

What resources are available to help minority-owned businesses and startups?

A good place to start is the U.S. Small Business Administration. The federal government provides a fantastic startup process for just about any venture.

Some banks might have programs focused on minority-owned small businesses, as well as those owned by women and veterans. Those could include access to capital, and education and financial tools for small businesses and startups that could help with the creation of a business plan and generating cash flow projections.

There are also local nonprofits that can help. For example, in Pittsburgh, there is the Urban and Community Entrepreneurship Program at the University of Pittsburgh, the Center for Women’s Entrepreneur at Chatham University, the Pittsburgh Technology Council, and the African-American Chamber of Commerce of Western Pennsylvania.

What should someone looking to start a small business today consider?

Now is a good time to start a small business as long as it’s done correctly. That means taking the time to research — understand the market, demand potential, competitive landscape, and how that product or service will be delivered while COVID is still a factor. It’s also important to write a strong business plan and find the right legal and accounting advice.
Another critical component of a successful launch is funding. Entrepreneurs should take time to interview banks, and possibly look for investors or crowd funding opportunities. All of this should be done before a marketing plan is developed and the business is opened.

While the COVID crisis over the last year has made operating difficult, it’s also created opportunities. Many small businesses are getting their start during this challenging time. In some cases, people have used this disruption to consider what’s really important, what drives them, what they’re passionate about, and many will start businesses that not only fulfill them personally, but meet needs within the community that were uncovered during the pandemic. These gaps can be filled by a small business owner who can leverage the support systems throughout their community to help get that dream started and really make a difference.

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Why 2021 might be the year to sell your business

The pandemic-led market disruption will require many business owners to expend a lot of time and effort to restore, resize or even reinvent their business into order to stay competitive. That’s led some to wonder whether they want to go through that — especially those who may have just righted the ship after the difficulties presented by the Great Recession. And more practically, they may be wondering if they have the capital necessary to make that transformation.

Generally, however, valuations have gone up for those companies that have been able to weather the COVID storm. Buyers are increasingly knocking on owners’ doors, offering some pretty favorable deal terms. That creates the potential for a big year for those who work smart ahead of a sale process to put their business in the best light.

“The M&A world has gotten much more competitive on the buyer side,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank. “There are many more buyers out there than there ever have been and a lot of cash on the sidelines looking to get in on the action. Buyers are looking to invest in quality companies, and that gives sellers a lot of opportunity, and leverage, to negotiate a deal.”

Smart Business spoke with Altman about the 2021 M&A environment and why this year may (or may not) be a good year to sell a business.

How might taxes and other factors affect a sale decision this year?

There is a sense from some that there’s probably going to be some changes in the tax law in the near future. If the Biden Administration changes the capital gains rate at the highest bracket, that could affect those who are selling a business in a significant way, and that’s creating uncertainty. Sellers are able to get a very favorable capital gains treatment rate — a business sold today will often be impacted by a 20 percent tax burden. If the tax laws change in the way that some expect, the burden might be 39.6 percent. That difference is driving some owners to work to take advantage of the current tax rates to avoid what could become an additional 20 percent hit to their post-transaction gains.

There are also other factors weighing on the sale decision. Businesses are facing the possibility of a $15 an hour minimum wage, technology replacement costs, and investments to improve their digital presence. That might lead some to find a partner — possibly in the form of a financial buyer — to help offset those costs or lead a transformation.

There’s also the demographics to consider. Many business owners may be reaching a pivot point in their life where they’d rather take all or some of their chips off the table and either de-risk or move into their post-business life.

Who should not sell right now?

People who are still passionate about running their business probably shouldn’t sell. Also, companies that had an unfortunate drop in their valuation could now be in a position where the sale price is going to be affected by circumstances beyond owners’ control. In those cases, it’s likely better to weather the storm a little bit and not give up a loss in value that could be recuperated when conditions become more favorable.

What else should business owners consider ahead of a sale?

The decision to sell is both personal and opportunistic. But planning is key because there are steps any business owner can take to improve their company’s value.

Before reaching the point of fielding offers from potential buyers, business owners should get help from experienced M&A advisers who can make important improvements that better position the business for a sale. It’s too late once buyers have been engaged, and it’s far too late after letters of intent have been signed. Very simple changes could add substantial dollars to a business sale.

Any owner considering whether or not it makes sense to sell should engage good advisers to have that conversation and evaluate the opportunity as thoroughly as possible.

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The broad economic indicators to watch in 2021

This year in the U.S., stimulus-driven economic growth is the expectation. And the country will get a better view of what that stimulus will look like once the new presidential administration gives its fiscal outline.

Still, there are many other indicators businesses should consider as they try to regain their footing and make plans for the new year. But which are the indicators to watch, and how much reliance should businesses place on them?

Smart Business spoke with Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank, about the outlook for the 2021 economy and what businesses should consider to determine where, when and how to move forward.

What are the broader economic indicators to watch?

The Institute for Supply Management, which surveys both manufacturing purchasing managers and services purchasing managers, offers a sense of how it sees business in the coming six to 12 months. Those indicators are largely strong at the moment, especially on the goods side.

This recession has been different from past recessions because it’s impacted the services sector, which has never really been impacted by a recession before. There are mixed indicators coming out of the services sector, largely because the full impact of the vaccine has yet to be realized.

Goods, while not as big as services in the U.S. economy, are doing very well. But whether that positive momentum stays this year is unclear — the signals are mixed. For example, housing prices may moderate some this year. Last year was good for sellers, but there’s a chance this year will be a little bit better for buyers.

Employment is also offering very mixed signals. There is still a great deal of stress in the employment market around services. The goods market is, however, stronger at the moment in this regard.

The most likely reason the indicators are mixed is because all of the outcomes are predicated on the outcome of the virus versus the vaccine — whether or not we will be able to get the virus under control enough this year to give consumers and businesses the confidence needed for the economy to grow.

How much emphasis should businesses put on broad economic indicators when planning?

This past year was really about top-down economic guidance from the federal level. Now, more companies are giving their guidance on how they view their business moving forward through the still-disrupted economy. As earnings season plays out, publicly traded companies will give their own guidance, which will provide a more company-specific forecast. This should be helpful because it will result in more micro guidance versus the macro guidance the U.S. was largely working from last year.

The economic guidance from the federal level this past year really didn’t see the goods sector recovering as much as it did, which likely caused more pessimism in the economy than was warranted. Now there’s the risk that forecasts about the economic performance of the economy once fully open again will be too positive.

What conversations should companies have with their bankers now?

There have been so many never-before-seen circumstances this past year. The U.S. has never been through government-mandated shutdowns. Services have never been severely impacted by a recession. And there’s never been this much fiscal spending from central banks to support the economy this quickly, and it’s continuing to come in. This is uncharted territory. However, we’re on the other side of this recession. It’s not clear what the economy will look like with such pressure on small businesses. Companies will need to be vigilant about how they look at their balance sheets, as well as how they handle some of the other indirect pressures that will impact businesses both internally and externally. It’s prudent for businesses to work alongside their banker and other financial advisers to consider all the economic indicators as they plan for the year ahead.

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Finding opportunities, identifying risks in global trade

There has been softness in global trade recently, for obvious reasons. U.S. exports in 2020 were down about 14 percent compared to the previous year, and imports were down about 9 percent. That broad-based contraction is going to impact all businesses and pull everybody down to a degree.

However, the exact opposite is being forecasted for 2021. The International Monetary Fund expects the global economy to grow this year by over 5 percent, which would be a significant reversal.

“We could go from a year where trade was really in the doldrums to having a record year in 2021,” says Jim Altman, Middle Market Pennsylvania Regional Executive, Huntington Bank.

That should encourage businesses that engage in cross-border trade, and those considering, to look ahead for opportunities, but also take steps to mitigate potential risks.

Smart Business spoke with Altman about the factors affecting the global trade environment, trends to watch and risks to consider in the new year.

What are the political factors affecting U.S. global trade?

Over the past few years trade tensions and the surrounding rhetoric became quite sensational. There are issues that, if resolved, would benefit the U.S. and U.S. companies. The broader impact of the trade policy coming out of the federal government, apt but applied in a less-than-ideal manner, has created challenges for U.S. companies, particularly those importing and exporting from China. It’s created an effect that everyone is going to feel.

There are some concerns but also some favorable expectations associated with the incoming administration in this regard. A continued focus on improving the U.S. position in global trade, in general, from a fairness perspective, is expected. And China is likely going to remain a focus. However, there could be a fundamental shift in how the U.S. deals with China, moving from a unilateral to a more multilateral approach. Trade alliances could be strengthened, in particular with Europe and larger trading partners in Asia, which should create opportunities for U.S. companies in those regions. That expected momentum, combined with what should be above average growth next year, could lead to a real opportunity for companies that know how to take advantage of it.

What trends are taking shape related to global trade?

COVID has definitely exposed some weaknesses in global supply chains. Because of that, two prominent trends are starting to emerge. One is near shoring and the other is ‘glocalization.’ While some high-value and critical good manufacturing is coming back onshore, the more significant trend we are seeing is near shoring of low-value manufacturing to low-cost markets closer to the U.S., such as Mexico. This helps preserve the manufacturer’s cost base while at the same time shrinking the supply chain and associated risks.

Glocalization, on the other hand, is a trend that sees companies building in countries where they sell to reduce risk and take a few links out of the supply chain. A global shift in production of this nature will likely be led by large companies, though with cascading impacts downstream. One of the most common reasons small and mid-sized companies expand globally is to follow their larger customers. This trend seems set to accelerate over the medium term.

How should U.S. businesses prepare for the coming year?

The total impact of COVID isn’t known yet and there’s going to be unexpected winners and losers. So, businesses either active in global markets or considering that activity should protect themselves through risk mitigation techniques such as letters of credit, foreign exchange hedging and credit insurance.

Seek advice from a bank that has a global network, both in terms of foreign banks and local advisers that can consult on local market practices and conditions, and diverse products that support companies that do cross-border business. Companies should also have an insurance broker skilled in cross-border risk and credit insurance. There are banks that have their own insurance arm, which can lead to a more comprehensive approach to risk management in cross-border dealings.

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Recognize employees’ needs as they adjust to remote work

Businesses have been faced with monumental disruptions this year that have driven foundational changes throughout their organizations. One of the most common changes has been the shift to remote work as government-mandated shutdowns closed many common work areas. While companies largely have a handle on the technical aspects of that change — providing equipment, making the necessary IT adjustments, tweaking processes — there’s more for companies to consider.

“Employee morale and engagement are significant issues for employers right now,” says Jim Altman, Middle Market Pennsylvania Regional Executive, Huntington Bank. “Companies that take steps to check in on their workforce and, as best they can, address any issues, will be more successful down the road.”

Smart Business spoke with Altman about maintaining employee engagement as the workforce operates remote.

What are employers reporting in terms of productivity since the move to remote work?

Productivity declines haven’t seemed to be the issue so far. Instead, there are cases where people are working too much. In those cases, it’s important for leaders to help employees manage their time so they don’t burn out. Where there is fatigue, employers should consider how they can support that employee because both their safety and their health are important to their success.

Support means something different to each employee. For example, as shutdowns affect schools and daycare centers, some employees may have to make arrangements to take care of children at home. They will benefit from an employer’s understanding and flexibility.

Gaining a sensitivity to those needs can be fostered by an increase in communication. However, this is not the time to micromanage. Moving to a remote work environment shouldn’t create different expectations or require more frequent checkups. But when or if there are declines in productivity, or an employee asks for more attention, then it makes sense to increase the frequency of communication.

How can employers help employees manage stress?

Working remote requires managers to be both caring when it comes to employees and reassuring. Leadership should find opportunities to thank employees for their work or share stories about how employees have made a difference for customers. That will go a long way, showing employees that their work matters and the organization recognizes their effort.

Companies can also relieve stress by finding ways for employees to have fun while they’re apart. Talk with human resources about possible, and organizationally acceptable, ways to help people connect and take a break from work. That could mean a contest or small group teleconferences during lunch. Activities like these could help employees who are missing the camaraderie they had with colleagues in the office.

What can employers do to help new hires who are starting the job remote get acclimated?

Onboarding is another aspect of operations that has had to undergo some changes because of the pandemic. For employers that are hiring while offices are closed, it’s important to make sure employees have everything they need to do their jobs effectively from the start. That means quickly shipping them the necessary equipment and making IT available to talk them through setup so they can confidently get up and running.

It’s a good idea to assign someone to work closely with new employees during the first few days or weeks to ensure they’re getting their footing in their new roles. It will also help employees get acclimated if colleagues reach out to the new hire, introduce themselves and help them navigate the organizational structure.

Companies that haven’t done so already should adjust their onboarding practices to reflect the new realities of the job and work conditions. Review current processes and introduce any new information that should be included in virtual sessions and what can be eliminated that no longer applies. It’s an important change to make to stay competitive as the market continues to rebalance.

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