SBN Staff

A growing business may think a national or large regional bank would best serve their business needs, but in reality, it is easy to get lost in the shuffle. As big banks tend to cater to big business, community banks offer many advantages as a dedicated business partner.

A local bank is knowledgeable about the community in which a business operates and can make quicker decisions from a local perspective instead of relying on decision-makers in another city or state. Business owners many times are able to talk directly to the head of lending or the president about their business.  

“When considering where to bank, look no further than around the corner. Community banks only thrive when their customers and communities do the same, so taking care of their customers and looking out for the best interest of their community is inherent in the way community banks conduct business,” says Gene Lovell, CEO and president of First State Bank.

Smart Business spoke with Lovell about why community banks might be the best place for your corporate and personal banking.

Why are community banks important?

A community bank understands firsthand that businesses are the backbone of a local economy. If a community bank is to succeed, local businesses must do the same. Local bankers take time to listen and understand a business owner’s vision because small businesses are the bank’s mainstay.

Large banks are not tethered to the places they operate. Too many times, the deposits that national banks collect from local residents and institutions leave the state to be invested in distant communities, countries, or on Wall Street, far removed from local account holders’ interests.

By banking with a community bank, money is put to work in the surrounding area in the form of loans to residents and business owners. In addition, by banking locally, consumers and businesses ultimately invest in their hometown by stimulating the economy and creating growth.

How else are community banks different from national banks?

The ownership of the bank — and board of directors — is generally made up of individuals who live and work in the communities they serve. They are business leaders who are deeply ingrained in the community and are more likely to serve on other local boards, attend community functions and know area business leaders.

Their local knowledge of the market area provides a significant advantage for the bank and its customers. Because they are so involved locally, they can spot needs and talk to clients before they even walk into the bank. At the same time, business owners have better access to management. Bank decision-makers make personal visits and really get to know their customers. Staff doesn’t rotate to other locations or departments; when you walk in, you see the same people with whom you have already established a relationship.

Community banks also tend to heavily participate in U.S. Small Business Administration loan programs.

How else do community banks help small businesses?

The largest 20 banks account for 57 percent of all bank assets, but only 18 percent of their commercial loans went to small businesses, according to the Federal Deposit Insurance Corporation. While small and midsize banks, which together account for 22 percent of all bank assets, lent 56 and 33 percent, respectively, to small businesses. In addition, smaller institutions continued to lend to small businesses at a steady rate during the recession, when big banks abandoned the market.

What makes a community bank a better place to do business?

The majority of community banks remain among the most financially sound in the country, because of conservative management practices. Where the federal government was quick to bail out ‘too big to fail’ banks during the economic crisis, most community banks were left to fend for themselves and came through the crisis as stronger banks. Most community banks were loyal and continued to lend to customers when many big banks did not. The community bank can be a safe haven from impersonal bank practices.

Eugene Lovell is president and CEO at First State Bank. Reach him at (586) 775-5000 or

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

The Jumpstart Our Business Startups Act (JOBS), passed in early 2012, mandates that the Securities and Exchange Commission (SEC) adopt rules to help start-ups and small businesses raise capital. Because of this, companies can advertise, market and publicly disclose that they are fundraising. The change also allows companies to raise up to $1 million from a large number of “nonaccredited,” or non-high net worth investors.

Smart Business spoke with Mark L. Skaist, shareholder and co-chair, Corporate and Securities Practice, at Stradling Yocca Carlson & Rauth about what this could mean for businesses.

Why does it matter that companies can advertise that they’re fundraising?

Companies need to either register their securities offering with the SEC or find an exemption from registration. Registration is often prohibitively expensive for start-ups, so most emerging companies rely on an exemption from registration, the most common of which is Rule 506 under Regulation D. This permits sales of an unlimited dollar amount of securities to an unlimited number of accredited investors and up to 35 nonaccredited investors. However, in order to rely on this exemption, companies had been prohibited from offering or selling securities through any form of general solicitation or general advertisements.

By allowing companies to advertise their securities offerings to the general public, companies should have a bigger pool from which to solicit investments.

There are, however, two conditions companies must meet in order to use general solicitation and advertisement and sell securities under Rule 506. Namely, all purchasers in the offering must be accredited, which for natural persons generally means net worth in excess of $1 million, or annual income of at least $200,000. Also, the company must take ‘reasonable steps’ to verify that the purchasers are accredited.

How are companies supposed to verify that a purchaser is accredited?

The SEC has said that companies need to make an objective determination in the context of the given facts and circumstances. It has come out with a nonexclusive list of verification methods that can be considered ‘reasonable steps.’ The specific methods and types of information the SEC considers sufficient include written representations of investors combined with two years of federal tax returns; bank statements combined with credit reports; and written confirmation from a broker, attorney, investment adviser or accountant.

How are the proposed rules regarding crowdfunding supposed to work?

These proposed rules provide that companies may sell up to $1 million of securities during any 12-month period to accredited and unaccredited investors. They also limit annual crowdfunding investments by investors with annual income or net worth below $100,000 to the greater of $2,000 or 5 percent of the investor’s annual income or net worth. For investors with annual income or net worth in excess of $100,000, annual crowdfunding investments cannot exceed 10 percent of their annual income or net worth.

There are also proposed initial and annual filing requirements by the company doing crowdfunding financing, which may include financial statements, a business plan and tax returns. Companies can use intermediaries, such as brokers and funding portals, and may not advertise the offering other than to provide a notice directing potential investors to the intermediary.

Based on the proposed rules, which require that companies raising between $100,000 and $500,000 through crowdfunding provide reviewed financials, and companies raising more than $500,000 provide audited financials, it’s likely that the accounting fees alone are going to be a significant roadblock to many small companies relying on this exemption.

While it seems steps have been taken toward making it easier for start-ups and emerging companies to raise money, time will tell whether they have any real impact. In the meantime, businesses are popping up that are looking to get involved with these types of offerings, either by verifying that investors are accredited or by setting up funding portals for crowdfunding.

Mark L. Skaist is a shareholder and co-chair of the Corporate and Securities Practice at Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4117 or

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

The vast amount of public funds and programs in federal, state and local governments can make it difficult to keep track of expenditures. Far too many people seize this opportunity to commit fraud, which in turn halts intended improvements or services.

For example, the Houston-based Dubuis Health System and Southern Crescent Hospital for Specialty Care Inc., in Riverdale, Ga., were accused of overcharging Medicare. The hospitals allegedly hospitalized patients longer than necessary to obtain larger reimbursements from the government. They agreed to repay the U.S. government $8 million to resolve various False Claims Act (FCA) allegations dating back to 2003.

“When fraud involving public funds occurs, the amount of goods or services those funds can purchase diminishes, and taxpayer dollars are wasted. Constituents see declining value. Public officials and stakeholders face questions regarding the use of tax dollars or other people’s money,” says Trish Fritsche, a senior manager in Forensics and Litigation Services at Weaver.

Smart Business spoke with Fritsche about how public sector officials and other stakeholders can respond to fraud schemes with the help of forensic accountants.

What are the most prevalent fraud methods used in the public sector?

Common ways to divert public funds from intended use are asset misappropriation, corruption and financial statement fraud. Although internal controls can be put in place to prevent fraud, in reality, fraud is potentially as unlimited as the human ingenuity to circumvent those controls.

How should organizations respond?

Once an incident of suspected fraud is identified via a hotline or other source, questions to ask include:

  • Should the investigation be handled internally or externally?
  • Who are the stakeholders?
  • What are the resources needed?
  • Should the entity self-report fraud?

At this time, attorneys and forensic accountants may need to become involved. Forensic accountants possess the skills necessary to appropriately respond in a crisis. They understand how to discover and develop information that can be used by governmental entities, boards and others with fiduciary responsibility. Forensic accountants also provide consulting services or expert testimony. They work closely with law enforcement and others to properly address the fraudulent conduct.

What laws can assist with addressing fraudulent conduct?

The Fraud Enforcement and Recovery Act of 2009 (FERA), enacted just after the American Recovery and Reinvestment Act, seeks to reduce fraud involving federal money and property. The act expanded various civil and criminal fraud statutes to include mortgage businesses, as well as entities associated with recovery act funding.

Liability under the FCA was originally limited to individuals or entities that directly or indirectly induced payment by the federal government. FERA, however, expanded that. Now, the FCA not only applies to direct recipients of government funds, but also to any contractor or other entity receiving funds. It explicitly prohibits the retention of government overpayments to individuals or entities.

The Racketeer Influenced and Corrupt Organizations Act (RICO) was enacted in 1970 to combat organized-crime activities. It has since been used to prosecute other offenses, including fraud cases involving government funds. Under RICO, anyone who has committed any two crimes from a list of 27 federal and eight state crimes —such as bribery, embezzlement and money laundering — within a 10-year period can be charged with racketeering. RICO allows a U.S. Attorney to temporarily seize a defendant’s assets and prevent the transfer of potentially forfeitable property. In addition, private parties are allowed to file civil lawsuits under certain circumstances.

Each fraudulent act involving public sector funds not only decreases the funds available, it also causes constituents to lose faith in officials. Effectively combatting fraud enables entities to do the greatest good for the greatest number, while establishing trust among all stakeholders.

Trish Fritsche, CPA, CFF, CITP, CGMA, is a senior manager in Forensics and Litigation Services at Weaver. Reach her at (800) 332-7952 or

Insights Accounting is brought to you by Weaver

Approximately 60 percent of the U.S. commercial population is self-funded today, and as health care premiums continue to rise under fully insured plans, self-funding looks to become even more attractive. However, many employers don’t realize how much self-funded health insurance has evolved with strategies and plans designed to help control costs.

“Self-funding does not look the same as it did just a few years ago,” says Mark Haegele, director of sales and account management at HealthLink.

Smart Business spoke with Haegele about how self-funding fits into health care today.

What’s driving the increase in self-funded health insurance?

Health insurance premiums are increasing at an unsustainable rate. Employees pay 89 percent more for family health care premiums, compared to a decade ago. In 2013, premiums only rose 4 percent, but that’s more than twice the rate of wages.

Self-funded premiums typically aren’t as costly. A recent Department of Labor report found that in 2011 fully insured premiums increased by $808, while self-funded premiums only increased by $248.

In response, 60 percent of companies self-insured their health benefit programs in 2011, up from 49 percent in 2000, according to a Kaiser/HRET survey. This increase can be partially attributed to more self-insured employers with fewer than 1,000 people in their health plan programs. In just two years, small and midsize employers that self-insure nearly doubled, according to PricewaterhouseCoopers data from 2010.

How has self-funded insurance changed?

Fifteen to 20 years ago, employers were afraid to trust self-funding, even though they knew it brought certain advantages, such as avoiding premium taxes, risk charges and state mandates. A self-funded environment gives employers more plan flexibility, depending on the disease prevalence or demographics of their population, as well as more access to data and lower fixed costs. But a piecemeal approach to health insurance that went against the insurance market culture was a foreign concept.

Today, there is less fear and higher adoption rates. At the same time, historical best practices still exist — avoiding taxes, risk charges and state mandates with lower fixed costs — as well as additional cost savings where self-funded plans avoid rules and regulations of the Patient Protection and Affordable Care Act.

What do self-funded plans look like today?

There is a market culture shift in the self-funded environment with more flexible plan designs. Member data is now transformed into actionable intelligence. Plans target specific high-dollar categories, such as high-dollar claimants, high-cost imaging, cancer and dialysis treatment, and pharmacy. With more transparency, employers can influence purchasing decisions by aligning incentives.

High-dollar categories like pharmacy are an area where vendor selection is key. Self-funded plans today have more administrator and vendor integration to better control these costs. A majority of employers spend around 16 percent of their total health care budget on pharmacy.

In addition, self-funded plans can be designed with custom networks, based on the cost of care. Through data analytics, plan sponsors can identify preferred facilities, procedures and/or services, and then use the plan design to cover a higher percentage of a preferred procedure or service.

Another strategy is using domestic centers of excellence. With this type of contract, providers offer preferred pricing due to exclusivity and volume. Employers can achieve savings on the unit cost. There’s also a performance component to eliminate waste — the provider gets a bonus for avoiding surgeries.

With pay-for-performance, a budget is set with expected costs, and the health care providers and employer agree on how to measure performance, looking at readmission rates, member pharmacy compliance, minimum levels of care, etc. Then, providers receive a percentage of the savings realized, as an incentive.

Self-funded plans are even utilizing alternative delivery models, such as telemedicine, on-site or near-site clinics and concierge health services.

Self-funded insurance may not be what you thought, so take the time to see if today’s plans would work for your business.

Mark Haegele is director of sales and account management at HealthLink. Reach him at (314) 753-2100 or

Insights Health Care is brought to you by HealthLink

In 2012, more than 40,000 businesses filed for federal bankruptcy protection. When this happens, the bankrupt entity or the bankruptcy trustee will sometimes seek to recover certain payments previously made to the bankrupt entity’s creditors so that those funds can be redistributed in accordance with the U.S. Bankruptcy Code. One type of payment that the bankrupt entity or the trustee may seek to recover is called a preference.

Smart Business spoke with Julie Johnston-Ahlen, of counsel at Novack and Macey LLP, about how to deal with being sued for preferential payments.

What is a preference?

A preference is a transfer or payment on an existing debt. It’s made by a soon-to-be bankrupt debtor to a creditor within the 90-day period preceding the bankruptcy filing.

Why can’t you keep the money that the bankrupt entity paid you?

The purpose of the law on preferential transfers is to try to make the bankruptcy process as fair as possible for all of the bankrupt entity’s creditors. When a business has insufficient cash flow, it will often pay certain creditors in full and not pay others, depending on which goods and services are most critical to the soon-to-be bankrupt entity’s business. In an effort to maximize the fair distribution of the bankrupt entity’s assets, creditors that receive preferential payments are often forced to return the money to the bankruptcy estate for redistribution, subject to the supervision of the court.

Do you have to return the money?

It depends. The bankrupt entity or trustee has the burden of proof. So, it must be demonstrated that there was a transfer or payment of property of the debtor, to or for the benefit of a creditor, on account of antecedent debt. This must occur within 90 days of bankruptcy and enable the creditor to receive more than it would in a Chapter 7 liquidation. In addition, the transfer or payment must have been made when the bankrupt entity was insolvent.

Even if these elements can be established, many creditors have viable defenses that may enable them to keep some or all of the money they received. These defenses are fact specific, and in practice, can be difficult to assert without the assistance of an attorney familiar with defending preference actions.

What should you do if you are sued for a preference?

In most cases, you have two options: you can pay back the full amount of the payment, or you can fight the claim. If you fight it, you have a good chance of keeping some portion of the payment, particularly if you can demonstrate that you have one or more viable defenses. Further, even if you don’t assert specific defenses, but you make a reasonable offer of partial repayment, the bankrupt entity or trustee may be willing to settle for that lesser amount. This is particularly true in larger bankruptcy cases where the bankrupt entity may be pursing repayment from many creditors. It’s often not feasible to fight with every creditor in an attempt to recover the full amount of each transfer.  

Should you accept payments from a customer that might be having financial trouble?

Generally speaking, yes. There is nothing ‘wrong’ with accepting a payment that turns out to be a preference. You just might be forced to pay the money back later.

Creditors are almost always better off accepting payment from the future bankrupt entity, and then later dealing with any efforts it makes to recover the money. Again, it is often the case that the bankrupt entity or trustee will settle the claim for less than the full amount of the payment. The creditor keeps the rest, and it’s almost always the case that it ends up recovering more money than if it had not received the payment.

Julie Johnston-Ahlen is of counsel at Novack and Macey LLP. Reach her at (312) 419-6900 or

Insights Legal Affairs is brought to you by Novack and Macey LLP



On Aug. 13 the Public Company Accounting Oversight Board (PCAOB) exposed proposed changes to the standard auditor’s report that have the potential to impact the relationship between auditors and their clients.

“Practitioners, issuer entities and attorneys dealing with accountants’ liability matters should all understand the implications of the proposed changes,” says Barry Jay Epstein, Ph.D., CPA, CFF, a principal at Cendrowski Corporate Advisors LLC.

Smart Business spoke with Epstein about the changes and their impact.

What are the main proposed changes to the auditor’s report?

The proposal most likely to generate controversy is that which requires identification of what the auditors determined to be ‘critical audit matters.’ This will mean that audit decisions that are currently not shared with the public, and most often are not even disclosed to the clients, will be set forth for financial statement users.

The second of the proposed requirements pertains to auditor independence, auditor tenure and an auditor’s responsibility for information that is outside the financial statements but that is included in the financial statement filings. Auditors have long been required to at least ‘read and consider’ other information included in documents containing audited financial statements. This is in an effort to be assured that information, such as the management discussion and analysis section of Form 10-K, does not contradict or conflict with what the financial statements convey about the reporting entity’s financial position or results of operations. This rule was imposed in reaction to observed situations where disparate implications could be drawn from the financial statements and footnotes, on the one hand, and narratives such as the ‘chairman’s letter,’ which sometimes would present a rosier scenario than would seemingly be warranted by the ‘hard data’ in the financial statements, on the other hand.  

The last of the three proposals amplifies slightly the already-extant options for the auditors to include certain explanatory paragraphs, addressing matters that, in the auditors’ judgment, deserve to be emphasized. It also draws attention to the so-called ‘going concern’ language when there is substantial doubt that the reporting entity will be able to survive for a year beyond the balance sheet date. These changes, too, are not deemed likely to garner opposition from the profession, or to expand auditors’ exposure to litigation.

What specifically would citing critical audit matters entail?

According to the PCAOB, critical audit matters are those matters addressed during the audit that:

  • Involved the most difficult, subjective or complex auditor judgments.
  • Posed the most difficulty to the auditors in obtaining sufficient appropriate evidence.
  • Posed the most difficulty to the auditors in forming the opinion on the financial statements.

Most firms’ internal audit guidance materials, such as manuals, programs and checklists, require that auditors plan their audits on the basis of financial statement assertions. Inherent and control risks must be considered for each of these assertions so that appropriate planned audit procedures can be selected or developed for each material assertion. Unless litigation later arises, these audit judgments are not generally shared with others, even with client personnel. Thus it is a radical departure to propose that critical audit matters be explicitly set forth in the auditors’ report or be made public in any other manner.

Will the PCAOB proposal improve the efficacy of audits?

As the SEC, the PCAOB and assorted academic researchers have documented, the predominant reasons audit failures occur among public companies are:

  • Exhibiting insufficient audit skepticism.
  • Failure to obtain and correctly evaluate sufficient appropriate audit evidence.
  • Inadequate planning, including risk assessments.

Audit failures rarely occur because the auditors misidentified critical areas deserving of audit attention.

Barry Jay Epstein, Ph.D., CPA, CFF, is a principal at Cendrowski Corporate Advisors LLC. Reach him at (866) 717-1607 or

Insights Accounting is brought to you by Cendrowski Corporate Advisors LLC


The Jan. 1, 2014, implementation date of many insurance provisions and mandates under the Affordable Care Act (ACA) is rapidly approaching, leaving employers to wonder just how the ACA is going to impact them and their benefit offering.

“As employers explore their health insurance options for 2014 and receive renewal rates from their carriers, some may see an increase that is higher than what they may have expected,” says Marty Hauser, CEO of SummaCare, Inc. “This increase can be attributed to several factors mandated by the ACA. Employers should familiarize themselves with these changes so they understand the reason for premium costs and can decide what is best for their employees and business.”

Smart Business spoke to Hauser about the changes in rating and underwriting under the ACA that will impact premium costs next year.

What do insurers use to determine rates for employers and how will that change?

Currently, rating is based on a number of factors including age, gender, health status and geographic location. Preexisting medical conditions and prescription use are also used to determine rates.

In 2014, rating is limited to age, smoking status and geographic location. Guaranteed issue also goes into effect, meaning that insurers cannot deny coverage because of a preexisting condition or rate-up for high-risk groups. Simply put, insurers can rate a group based on fewer factors than in previous years.

What else is changing in rating that will impact premiums?

Age bands, which are ranges of ages that determine premium amounts, are used to determine a group’s rates, and today these are set at a 5-to-1 gender-based ratio.

Beginning in 2014, age bands can have a maximum ratio of 3-to-1, and these age bands are separated into three groupings: one single age band for children ages 0 through 20, one year age bands for adults ages 21 through 63, and one single age band for adults ages 64 and older.

It’s important for employers to understand that under the ACA these ratios are uniformly mandated and regulated across the country for each carrier in order to level the playing field when it comes to group insurance premiums.

In addition to the change in rating factors and age bands, the ACA requires certain fees and taxes from health insurance companies based on the insurer’s membership.

The first fee, called the patient centered outcomes research trust fund fee, went into effect last year at a cost of $1 per family member and increased to $2 per family member this year. The fee is collected to help fund the Patient-Centered Outcomes Research Institute, which will assist patients, clinicians, purchasers and policy-makers in making informed health decisions through research.

The second fee, called the transitional reinsurance program fee, is effective from 2014 through 2017 at a cost of $5.25 per family member per month or $63 per family member annually. This fee will be assessed against both insured and self-funded group health plans in order to stabilize premiums in the individual market for the first three years the marketplaces are in effect. These fees will be used to make payments to carriers that cover high-risk individuals in the individual market.

The third fee, called the marketplace user fee, goes into effect next year at a cost of 3.5 percent of policy costs. The marketplace user fee is meant to cover administrative costs of policies on the health insurance marketplace.

Finally, the annual health insurer industry fee begins next year at a cost of 2 to 2.5 percent, increasing to 3 to 4 percent in 2015. This fee is an excise tax to fund some of the provisions of the ACA.

In addition to the new fees, health plans are still subject to the 1.4 percent state premium tax.

How can employers offset some of the expense of their health insurance next year?

While there isn’t much employers can do about the new rating factors or fees imposed by the ACA, they can help offset their premium costs by working with their insurer or independent insurance agent to make sure they are offering the right coverage for their employees and budget.

Marty Hauser is CEO of SummaCare, Inc. Reach him at

Insights Health Care is brought to you by SummaCare, Inc.

Recently, President Barack Obama outlined a plan to combat rising college costs by holding colleges and universities more accountable for results. The foundation of this plan is a ratings system that would provide students and families with information to help them select a school that offers the best value. Ultimately, Congress may tie the provision of federal student aid to a college’s rankings.

What might the proposal mean for colleges and universities and the businesses that hire their graduates?

Smart Business spoke with Luis Ma. R. Calingo, Ph.D., president of Woodbury University, about the challenges of making college more affordable.

Will this proposal help colleges do a better job of turning out graduates who are prepared, for example, for a career in business?

The ultimate impact of the president’s proposal is difficult to gauge. However, the debate must begin with understanding the role of higher education.

Colleges and universities exist for one reason: to produce graduates with highly valued degrees who have the knowledge and the character to serve and lead. President Obama’s proposal enjoins colleges and universities to return to basics.

Doesn’t it make sense to focus curriculum on courses that are most essential to a student’s future career?

While that makes sense at the graduate level, there are benefits to a broader undergraduate liberal arts education, which is when students ought to be exploring their interests.

Businesspeople often say they can’t understand why any undergraduate student would pursue a history major or take a philosophy course. But the students who study history or philosophy are those who end up in law school, just as those who pursue biology may end up in medical school. These are the courses that enrich the mind so that students become better business executives by being more critical in their thinking and more socially responsible. All of those things come from a liberal arts education, which is why many professional degree programs have a strong foundation in liberal education.

On a personal note, my daughter is majoring in theology and minoring in Arabic in preparation for a career in law and foreign service. She’s a prime example of why it’s important to debunk the myth that a liberal arts education does not contribute to preparation for a business or other professional career. The dichotomy between liberal education and professional preparation is an artificial one.

What can be done to reduce the spiraling costs of a college education?  

How people respond to the cost question depends on their perspective.

If you are a parent or student who relies on federal Pell and/or state grants, any move that reduces public funding for higher education is of great concern. It also depends on where you live. A state university education in Ohio costs two or three times what it costs in California.

At Woodbury, what we do and what we spend is related to producing quality graduates. As with most universities, we spend 70 to 80 percent of our budget on personnel. We consistently apply a student-to-faculty ratio to determine new faculty hires. Any inflationary increases are generally tied to the Consumer Price Index. That’s how we establish the bulk of our budget.

In fact, Woodbury is doing a business process improvement study of our student services and business processes to improve our operational efficiency. Other colleges, large or small, should do the same.

Of course, universities like Woodbury could reduce the numbers and kinds of courses offered to focus on those required for majors. That, however, would be counter to the argument that business and other professionals benefit from a grounding in liberal education.

Luis Ma. R. Calingo, Ph.D. is president of Woodbury University. Reach him at (818) 252-5101 or

For more of Calingo’s perspective on the challenges facing colleges and universities today, visit his blog, Pursuing Excellence in Higher Education, which debuts in October.

Insights Executive Education is brought to you by Woodbury University


Additional blogs and articles with Luis Ma. R. Calingo:

Better Than ISO? How Baldrige Benefits Manufacturers

5 Quick Questions: More Powerful Than ISO 14000 For Plant Floor Management

Building a World Class University: Beyond The Numbers

One of the toughest challenges facing managers is how to plan for profitable growth in an uncertain future. 

Look back ten years at your customers and their needs, your employees, market structures, delivery systems, regulatory policies, social systems, the economy and technology, and it’s clear how much things have changed. It’s a safe bet that at least that much change can be expected in the next ten years, but what kind of change will occur?

Compounding the uncertainty is the necessity to keep managing current activities for efficiency and growth while planning for a future that may call for different activities altogether.

Smart Business spoke with Dr. Jaume Franquesa, visiting assistant professor of strategic management, and Dr. James Martin, associate dean and professor of marketing, both at the Boler School of Business at John Carroll University, about ways businesses can position themselves to take advantage of tomorrow’s opportunities.

How do you get started?

Success in the long run is all about marshaling the right capabilities and resources and using them to create sustainable competitive advantage for the future.  Start by identifying and assessing your current capabilities. Generally, there are two categories of capabilities that allow you to do both the day-to-day activities and plan for an uncertain future. 

The first category is operational capabilities, which are the things you currently do that give you a competitive advantage in your current markets. That is, the skills, competencies and resources that you use to try to satisfy your current customers’ needs better than competitors or at a lesser comparative cost, leading to higher profit. 

The second category is dynamic capabilities, which are the capabilities that will help you to plan for the future. There are generally three types of dynamic capabilities.

The first is the ability to do environmental scanning and sensing. Being able to identify and track trends, and understand how they might be important to your business is a critical competency to develop.

The second dynamic capability is being able to turn the trends that you identified as important to your business into opportunities that can be pursued further. Innovative thinking is the cornerstone of this capability.

The third dynamic capability is being able to quickly re-configure your internal resource base in a way that creates a sustained competitive advantage for pursuing the opportunity. Understanding which resources are valuable, along with adaptive resilience and flexibility in your organization are key ingredients for this capability.

The stronger you are at each of the dynamic capabilities, the better your strategy and its implementation.

How can a manager foster adaptation and flexibility with regard to long term strategic direction?

As you think longer term, the uncertainties about investments in strategic direction can cause significant anxiety. This is really tough, but it is at the heart of building an organization for the future.

One useful approach to navigate this uncertainty is to apply ‘real options’ logic to investments for the future. Instead of making early choices under uncertainty and committing significant resources to a particular strategic direction, consider engaging in multiple directions that will keep several windows of opportunity open. In this way, you can delay commitment to any of them until more information is available and some of the uncertainty is resolved.

To do this, you must design the program of investment in each strategic initiative as a series of sequential experiments, with a continue/discontinue evaluation point at the end of each experiment. That is to say, at the end of the period you have the option of continuing to invest as planned, narrowing the scope of the project, or abandoning the project.

The goal is to create and manage a portfolio of alternative strategic options. You do this by investing in multiple stage-gated projects designed to seed the development of new capabilities or to explore potential new markets. The keys to the management of this portfolio of strategic options are:

  • Project selection.
  • Design of investment stages in a way that maximizes learning while minimizing the cost of each strategic option.
  • Portfolio diversification. 

The dynamic capabilities that you develop give you the foundation for creating this portfolio of
strategic options.

Dr. James Martin is an associate dean, professor of marketing at the Boler School of Business at John Carroll University. Reach him at

Dr. Jaume Franquesa is a visiting assistant professor of strategic management at the Boler School of Business at John Carroll University. Reach him at

Insights Executive Education is brought to you by John Carroll University

The government has increased tax rates and implemented other changes for 2013. However, companies may be able to employ tax-saving options — deductions, depreciation provisions or deferrals — prior to Dec. 31.

If companies review before year-end, they are better able to maximize potential savings, and it may even spur thoughts for future tax planning, says Sean Muller, partner-in-charge, Houston Tax and Strategic Business Services at Weaver

Smart Business spoke with Muller about the opportunities to save on your 2013 taxes.

How can businesses utilize enhanced Section 179 deduction limits in 2013?

Enhanced Section 179 deduction limits were enacted for 2013, which allow companies to immediately deduct up to $500,000 of equipment purchases made, rather than depreciating over a number of years.

The deduction applies to 2013 equipment purchases of up to $2 million. The deduction is slowly phased out for taxpayers with $2.5 million or more in purchases. Section 179 deductions can be applied toward tangible property purchases, but real property doesn’t qualify. 

In 2014, the Section 179 limitation will decrease to $25,000. Companies that plan to make large capital expenditures in 2014 may wish to purchase in 2013 instead. The deduction can be used to reduce tax liability to zero, but it cannot put you in a net loss position.

How does bonus depreciation differ? 

Taxpayers in some states may be able to utilize a 50 percent bonus depreciation rate for qualified property placed in service during 2013. Unlike the Section 179 deduction, bonus depreciation is not limited to net income and does not limit the deduction amount.  

Bonus depreciation applies to new, original use U.S.-based property with a recovery period of 20 years or less.

The 50 percent bonus depreciation and Section 179 deduction can be used together.

What savings are available through like-kind exchanges?

Another tax-saving opportunity to consider is like-kind exchanges. IRS Code Section 1031 enables a taxpayer to defer capital gains tax if the property sale proceeds are reinvested in similar property within a relatively short time. The exchange may be a simultaneous swap of properties or a deferred exchange. With a deferred exchange, one property is disposed of and the proceeds are then used to buy one or more like-kind properties. 

Section 1031 exchanges exclude inventory, stocks, bonds and partnership interests. 

Who can take domestic production activity deductions (Section 199)?

In 2013, businesses with qualified domestic production activities may be able to receive a 9 percent tax deduction. Qualifying activities include the manufacture, production, growth or extraction of qualifying production property within the U.S., as well as real property construction, oil and gas drilling, and engineering and architectural services related to real property construction. 

Generally, a taxpayer is allowed a deduction equal to the lesser of: 

  • Qualified production activity income (QPAI), which is a modified calculation of income related to qualifying production activities.
  • Taxable income.
  • 50 percent of the form W-2 wages deducted in arriving at QPAI.

The level of complexity in calculating the appropriate deduction depends on the nature and structure of the business. 

What are other year-end tax strategies?

Companies also should consider potential residual tax-saving activities, such as:

  • Deferring income to 2014 if cash flow and current income permit.
  • Making additional charitable donations. 
  • Writing off and disposing of damaged or obsolete inventory to reduce carrying costs and garner tax deductions.
  • Writing off bad debt that cannot be collected. Companies should keep supporting material like phone logs, correspondence, collection agency contracts, etc., to prove a reasonable effort was made to collect.

Invest the time now to plan for your 2013 taxes and reap the benefits later. 

Sean Muller is partner-in-charge, Houston Tax and Strategic Business Services, at Weaver. Reach him at (832) 320-3293 or

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