Jayne Gest

With a Google search, there are two sets of results — paid and organic.

Yi He, Ph.D., assistant professor in the Department of Marketing & Entrepreneurship, College of Business and Economics, at California State University, East Bay, says her advertising management students were surprised to see how many people click on the paid ads.

Her students participate in the Google Online Marketing Challenge, where they are given $250 to run a three-week online advertising campaign for a business or non-profit, which is developed using Google AdWords and Google+.

This type of search engine marketing (SEM) truly benefits small companies.

“For smaller companies, in the past, there was no way to compete in the conventional media with big companies. Now, they can differentiate themselves using SEM, just by spending their advertising dollars in a relatively cautious manner,” she says.

Smart Business spoke with He about why small companies are turning to SEM.

Why is SEM so important today?

Most Internet users don’t want to remember a website URL. Eighty-five to 90 percent of people are guided to websites by search engines, such as Google. Also, people usually just look at the first five or 10 search results, and many of those are advertisements. So, once you start running ads, you generate more ways to reach Internet users.

How are SEM and conventional advertising different?

With conventional advertising, print and broadcast, it’s hard to measure whether your ad campaign was effective. However, everything is measurable with SEM — you can calculate how much ROI is generated from every advertising dollar spent.

Conventional advertising also requires a specific set of skills. But a business owner can run a SEM campaign by opening a Google AdWords account and be up within minutes. It may not be a great campaign, but it’s not like creating a TV commercial.

How does SEM differ from Facebook ads?

With SEM, the only way to target ads is geographically. So, a San Jose restaurant owner can specify that he or she only wants the ad to show up for a ‘Thai food’ search in a 15-mile radius from the downtown San Jose area. Google doesn’t charge for the number of times the ad shows up, or the impression, but by cost-per-click. With Facebook display ads, ads can be targeted by age, gender, marital status, interests, education level, etc., and are charged by both the click and impression.

On average, of the 10,000 times a Facebook ad shows up, only five people click on it, because in a social environment you don’t want to be interrupted to buy something. With a search engine, people are looking for a solution to a problem. A search result, whether organic or paid, is like you’re in a retail store and someone offers a helpful recommendation. With Google’s marketing challenge, my students can get a click through rate (CTR) that is 100 times higher than the Facebook average.

Why is SEM more useful for small business?

Smaller businesses typically aren’t as visible on the organic results or with the extremely popular keywords. But they can run a SEM campaign to generate Internet traffic and increase visibility. There’s no entry barrier, too, so they can get started right away.

SEM also can help figure out demand. For example, one student ran two ad campaigns for a local Chinese restaurant and discovered that ‘Chinese dining’ was not popular in either impressions or CTR. However, ‘Chinese takeout’ led to more people clicking the restaurant’s website and calling, which increased takeout orders dramatically.

What ethical concerns come up with SEM?

We don’t know exactly what data companies have on consumers, and what they do with it. All impressions, clicks through and transactions can be tracked. For example, you might go to a website to look at a few items but not purchase anything, and over the next few days you see similar items on your Internet pages. In addition, some argue that precisely targeted results deprive people of the total available information.

Public policymakers have been pushing to protect consumer information with something like the ‘do not call’ list. A ‘do not track’ list would enable people to sign up to keep their Internet Protocol addresses from being recorded.

Yi He, Ph.D., assistant professor, Department of Marketing & Entrepreneurship, College of Business and Economics, at the California State University, East Bay. Reach her at (510) 885-3534 or yi.he@csueastbay.edu.

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Additional Medicare taxes went into effect Jan. 1, 2013, for high-income earners, but many may not consider these taxes until they start filing their 2013 returns — and writing the checks.

“You want to take the time to go through this now, and lay the groundwork, because the decisions you make will have ramifications for next year,” says Chris Paris, regional tax leader of the Greater Bay Area at Moss Adams LLP.

“We’re spending a considerable amount of time dealing with this. People are asking: How is this going to impact us? Is there anything we can do to structure around it?”

Smart Business spoke with Paris about the impact of these taxes and what you need to know.

What are the new Medicare surtaxes?

The Unearned Income Medicare Contributions Tax (UIMCT) is a 3.8 percent tax on net investment income for higher income individuals. The other surtax is a 0.9 percent tax increase on wages and self-employment earnings for higher income individuals, for a combined employer/employee tax rate of 3.8 percent.

The taxes are designed to help cover about half the cost of the Patient Protection and Affordable Care Act, passed in 2010.

How does the IRS define higher income individuals?

Both taxes apply to individuals that meet an income threshold of $200,000 or more, or those married and filing jointly that meet a threshold of $250,000 or more.

If a taxpayer earns wages in excess of $200,000, his or her employer is required to withhold the 0.9 percent, in addition to the 2.9 percent previously taken out (1.45 percent for the employer and 1.45 percent for the employee). However, the 3.8 percent on net investment income is a new type of tax that may take some by surprise.

What’s so unusual about the UIMCT?

This is the first time the government has taxed net investment income to pay for the cost of Medicare. Net investment income includes interest income, dividends, royalties, rental income, and income flowing through passive investments like private equity funds, hedge funds and venture capital funds.

Rental income is going to be a big factor because many higher income earners own a lot of real estate, don’t qualify as real estate professionals and will be subject to this tax. It also could impact middle market companies where the owner of the business owns the real estate, although there may be ways of grouping activities together to reduce the impact of the tax. Further guidance regarding these issues is anticipated in the final version of the tax regulations.

How can those affected by these taxes plan?

First, be cognizant of the fact that it’s happening, so you can factor it into your 2013 tax planning. Estimated taxes are usually based on what you owed the prior year, so your figures may now be too low.

Secondly, you can potentially reduce the impact of the UIMCT by recharacterizing passive income subject to the 3.8 percent tax to ‘Trade or Business’ income, which is not subject to the surtax. For example, an individual who owns multiple businesses or rental properties may be able to group the multiple activities into a single activity by making an election pursuant to Revenue Procedure 2010-13. However, the activities must also rise to the level of a trade or business, a requirement that currently lacks clarity in the proposed regulations. Further guidance may be provided when the final tax regulations are released. The grouping election is particularly attractive if you haven’t filed your 2012 extended return because you can put the IRS on notice now to be in a better position to potentially reduce the UIMCT next year.

Questions also remain about whether certain people qualify as a real estate professional — whose rental income may not be subject to the UIMCT— which is another reason to reach out to your advisers now.

In addition, it may be time to discuss choice of entity, how you operate your business. An LLC with two active owners in the maximum tax bracket could be looking at a combined 43.4 percent federal tax rate on income, whereas a C corporation has a maximum tax rate of 35 percent. However, any dividends from the C corporation would also be taxed, hence there could be double taxation. Further, tax consequences alone may not be enough of a reason to switch, and exit alternatives such as asset sales need to be considered.

Some taxpayers are exploring alternative investments, such as tax-exempt interest income like municipal securities, non-dividend paying equities in certain rapid growth companies, tax-deferred annuities and investments, as well as considering capital gain planning, loss harvesting, installment sales and more.

Whatever strategy you decide to undertake to help control what you pay, don’t wait to plan — or you may not have the most desirable result.

Chris Paris is Regional tax leader, Greater Bay Area, at Moss Adams. Reach him at (415) 677-8352 or chris.paris@mossadams.com.

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Cloud computing is the use of applications that are housed on servers outside of a business’s location and accessed using the Internet. Instead of deploying servers internally and building a network infrastructure within their walls, companies contract with a cloud-computing provider that hosts the applications.

“Cloud computing is a key component of any company’s infrastructure these days, whether you’re Fortune 500 or a sole proprietorship,” says Eric Folkman, manager of managed services at Blue Technologies. “There’s a piece of it now that can fit pretty much any company. It wasn’t that way a few years ago, but the technology has progressed and the costs have come down so far that there’s something there for everybody.”

Smart Business spoke with Folkman about getting started with cloud computing.

Why should you look into utilizing the cloud to help your company?

Three simple reasons are:

  • Financial benefits.
  • Increased availability of data, whether for your employees or the public.
  • Reducing your disaster risk with some form of backup.

What specifically can be taken to the cloud?

The ability to move applications to the cloud has exploded. It may sound cliché, but the better question might be: What can’t you take to the cloud?

Some applications are better than others in the cloud environment, such as email, financial systems, customer relationship management (CRM) systems, data backup and Microsoft Office-type products like Word and Excel. In addition, voice is gaining popularity, which works by routing your phones through the Internet. This can reduce your business phone bills and provide flexibility to telecom costs.

When is the right time to go to the cloud?

It depends on the situation, but anytime a company is considering a major change to its technology — whether a server upgrade or application change — that’s an appropriate time to consider the cloud.

Here’s a scenario I run across three or four times a week: A company is running an older, internal email server and decides to upgrade. It could spend tens of thousands of dollars on hardware, software licensing and implementation. The business gets an upgraded server but still has maintenance costs, security risks and the potential for downtime if something happens to the physical servers.

The alternative is to host email through the cloud. There’s no need to secure and maintain an internal server, and email is more accessible via the Internet. There’s also no disaster recovery component — you know the provider has mechanisms to keep your data safe. However, sometimes you have so many users going to the cloud that it doesn’t make sense, as opposed to doing it in-house, from a cost perspective.

What’s an easy way to get started?

Cloud-based data backup is a low-cost, low-risk way for a company to dip its toe in the water. Companies see savings quickly and don’t have to mess with tapes and the risk of someone (usually the receptionist) manually rotating tapes off-site. Although there are some configuration changes, it’s not a mission-critical application.

Email and a CRM, like salesforce.com, are two others to consider doing sooner rather than later with a quick payback.

How is the value of cloud usage measured?

Like any business process, do your homework and build a business case. Not every company is perfect for it, but it’s an option executives should at least look at. It can be difficult and cumbersome to figure out if you’re not familiar with IT and don’t understand all the pros and cons of the cloud environment. A little advice in the beginning could really help get you beyond the learning curve.

Once you’re using the cloud, many providers offer advanced reporting and monitoring tools, so if something goes wrong you can take corrective action. For instance, most backup providers offer a dashboard. You can see how many computers are backing up, how much from each, how long it takes, how many failed to back up, etc. You also want your cloud contracts to include flexibility to add services or make changes as needed.

Eric Folkman is manager of managed services at Blue Technologies. Reach him at (216) 271-4800 or efolkman@btohio.com.

Blue Technologies offers further insight on this and other topics affecting businesses on its blog. Learn more by visiting www.btohio.com/news-resources.

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Whether you are looking to manage your own assets, control how your assets are distributed after your death, plan for incapacity or enable your business to continue uninterrupted should something happen to you, trusts can help you accomplish your estate planning goals. By establishing a trust, you ensure that the assets gathered during your life will not disappear because of the inexperience or inability of beneficiaries. A byproduct of that is the peace of mind that comes from knowing your loved ones will continue to be financially protected.

“One of the benefits of a trust is that it’s established based on the unique needs and objectives of the individual and the individual’s family, and tailored to meet those needs,” says Susan L. Nelson, CTFA, Senior Trust Executive and Senior Vice President at First Commonwealth Advisors.

Smart Business spoke with Nelson about the benefits and management of trusts.

What are the different types of trusts?

There are many types of trusts, the most basic being the revocable and irrevocable.  The type of trust you use will depend on what you are trying to accomplish. A revocable trust, often referred to as a living trust, allows the individual establishing the trust to remain in control of the assets and allows them to change the beneficiary, the trustee, the trust terms and even end the trust. The grantor can use the trust for investment management, bill paying, tax planning and avoidance of probate. It can continue on in the event of incapacity, providing seamless financial management for the grantor, and can continue on after death for the benefit of others. Once the grantor dies, the trust becomes irrevocable.

An irrevocable trust is where the grantor gives complete control to an independent trustee who manages the assets for the grantor and beneficiaries. You cannot easily change or revoke this type of trust. It’s frequently used to minimize potential estate taxes by reducing the taxable estate of the grantor because the assets transferred to this trust, plus any future appreciation, are removed from the grantor’s gross estate. Additionally, property transferred through an irrevocable trust will avoid probate and may be protected from future creditors.

What are the benefits of trusts?

Some benefits are:

  • Continuous financial management in the event of incapacity.

  • Professional investment management.

  • Financial privacy — a trust isn’t public like a will.

  • Probate avoidance with no lapse in asset protection and investments — probate can take a year or more, depending on the complexity.

  • Asset management for inheritances.

  • Creditor protection for heirs. If a beneficiary is going through bankruptcy, money in the trust cannot be touched.

Trusts can provide lifetime financial protection for a surviving spouse or disabled child, an inheritance for children from an earlier marriage, can minimize estate taxes and provide a future legacy for charity. Trusts can be used in order to protect, preserve and transfer wealth for the benefit of individuals, families and organizations. While trusts can be used for myriad circumstances, they are not for everyone. Discuss the advantages and benefits of a trust for your situation with a financial adviser.

How should a trust be managed?

Every trust is based on your needs and objectives. When setting up the trust, determine what you’re trying to accomplish so you and your financial adviser can decide how to reach those objectives. One of the first things looked at are tax implications and how to reduce pain points. Providing for future beneficiaries should also be examined. After the trust is established, you’ll need to meet periodically to discuss the investment portfolio and life changes to be certain the trust still meets your needs.

Why choose a professional trustee?

Institutional fiduciaries are pros at what they do, have professionals on staff with years of experience, and are on the cutting edge of regulatory and tax law changes.  They may be the best option for reliability, experience, responsiveness, neutrality and arms-length objectivity with beneficiaries, objective investment guidance, convenience and consistency over time. An institutional fiduciary doesn’t age or die.

Susan L. Nelson, CTFA, is a senior trust executive and senior vice president at First Commonwealth Advisors. Reach her at (724) 832-6062 or snelson@fcbanking.com.

Follow up: To learn more, call (855) ASK-4-FCA, or visit ask4fca.com.


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You’ve been in business for several years and it is profitable. You have a decision to make: Do you want to invest in the business and buy a facility, or will you continue to lease?

With the help of your accountant, you should carefully examine the anticipated capital requirements of your business.  Evaluate your ability to obtain capital or loans. Don’t box yourself into being cash poor and unable to meet business obligations or take advantage of opportunities.

“The prevailing reason that businesses fail is insufficient capital. Draining capital to pay for a real estate project could be a cause,” says Howard N. Greenberg, managing member at Semanoff Ormsby Greenberg & Torchia, LLC.

“My colleague, Jeffrey Rosenfarb, a principal in Hart Corporation, a national industrial real estate firm, advises that small manufacturing firms overwhelmingly desire to own versus rent, whereas larger corporations generally prefer leasing.”

Smart Business spoke with Greenberg about some pros and cons of leasing or purchasing industrial real estate.

What issues should be examined when considering purchasing a facility?

First, what’s the nature of your business?   Manufacturing that utilizes heavy, difficult-to-move equipment is where purchasing may be desirable, to avoid being at a landlord’s mercy when your lease expires. Or is it light manufacturing or distribution, that moves easily?

Second, can you obtain a facility that will remain adequate for your needs? Plan for potential future expansion. Have your counsel review the local zoning code to determine what can be built, either now or in the future.

Do you contemplate children in the business? Real estate can provide a source of income and inheritance. Counsel will need to prepare an agreement that deals with numerous issues including governance, death, disability, termination of employment and sale of the business.

Where do you want to invest your limited capital? Be sure that you will not need capital to expand your business versus acquiring a building. Lending rates are at historic lows, encouraging acquisition. Consult counsel concerning special types of financing such as tax free industrial development or state-provided financing, as well as tax abatements.

What issues should you consider if you determine to lease?

Check locally to ensure there are adequate reserves of industrial rentals available. With any lease, secure options to: extend the term; terminate early; purchase the building; for a right of first refusal; and for the ability to assign the lease or sublet in connection with your business sale.

If I decide to purchase, what entity should purchase the property, and how should the lease be structured?

Keep the building owner entity distinct from the entity that occupies it. The building owner entity should be a limited partnership, limited liability company or S corporation to enable you to utilize tax advantages like depreciation and amortization, and to permit gifting. Also, you may want to divvy up interests differently in the operating company versus ownership in the real estate company. You could decide to bring a partner into your business, but not into the building ownership.

You will need a lease between the two entities, especially if you’re going to sell the business and not the real estate. As a landlord, limit the tenant’s options and set a reasonable term.

Does new construction make sense versus purchasing and rehabbing an existing building?

With new construction or significant rehab, you must have a reliable contractor and architect. Assume that it’s going to cost at least 15 percent more and take 15 or 20 percent longer than initially estimated. Weigh the aggravation of new construction versus having your building the way you want. However, over the past 15 to 20 years, sale or leasing of existing facilities has far exceeded new construction, per Rosenfarb.

Buying and holding an industrial property usually works out well for the owner. For heavy manufacturing, building ownership, or a long-term lease with renewal options, is the way to go.

Howard N. Greenberg is a managing member at Semanoff Ormsby Greenberg & Torchia, LLC. Reach him at (215) 887-0200 and hgreenberg@sogtlaw.com.

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Small Business Administration (SBA) loan programs can fill needs that traditional bank lending does not.

“The key is going to a bank that is a preferred lender and has dedicated resources or an SBA specialist who really understands the eligibility requirements and programs,” says Tom Doherty, managing director and head of Business Banking at The PrivateBank.

Smart Business spoke with Doherty about how SBA loans can give your business access to vital capital.

How does SBA lending benefit businesses?

What the SBA offers fits into three categories:

•  Collateral shortfall — Banks have certain advance rates on the collateral they lend against. If there’s a collateral shortfall, the SBA can provide a guarantee to enhance the financing.

•  Lack of equity — Banks have down payment requirements, but the SBA will guarantee loans to allow for a smaller equity injection by the business owner.

•  Need for extended terms — If the borrower needs to extend the amortization term of a loan beyond traditional bank financing, the SBA will step in. If, for example, you need financing for a piece of equipment, the bank might offer five years on the loan term. The SBA has a program where you could go seven to 10 years on that deal.

What are some misunderstandings about SBA lending?

What the SBA considers a small business differs by industry, and although there is no minimum, it goes larger than most would think. Visit www.sba.gov/content/small-business-size-standards to find qualifying cutoffs. The standards are expressed in either millions of dollars or number of employees. In some instances, a company can still qualify with 1,500 employees.

Then, there’s a perception that SBA is a lender of last resort. However, the SBA, like a bank, looks at cash flow. Recently, businesses have been returning to profit on their financial statements, so more are eligible for SBA programs.

Many borrowers also think SBA lending is a tedious process with a lot of paperwork. In part, this misconception may come when borrowers deal with an inexperienced lender. But the SBA has listened, too, and streamlined its processes, such as the small loan advantage program, which lends up to $350,000 on a very quick turnaround.

Are certain SBA loans not as well known?

The SBA’s 7(a) loan is the general flagship program with which most banks and borrowers are familiar. The SBA 504 loan program is a little lesser known. It applies when, for example, you want to buy a piece of real estate and put 10 percent down. The bank then takes 50 percent of the loan, and a local certified development company sells the remaining 40 percent as a debenture on the secondary market. Bottom line, it can give the borrower a 20-year fixed rate deal that’s not available conventionally.

What should a borrower know about the SBA loan process?

The SBA website, www.sba.gov, is a great place to find background on the different programs. But the best option is to go to a bank that is a preferred lender with a dedicated SBA specialist. As part of the application, there are SBA requirements to be met and documents to be completed. Many times, lenders don’t do enough of these on a regular basis to have expertise in putting the package together.

Once the application is complete, the loan goes through the normal course of underwriting because the SBA, in essence, has delegated the approval authority to that preferred lender.

What would allow more SBA lending?

Under 504, as part of the stimulus package, the government allowed banks to refinance existing real estate debt where businesses could improve their terms or lock in a longer fixed rate. However, this ended in September 2012 and the level of 504 lending has dropped significantly.

The new congressional budget proposal has suggested this refinancing provision be extended out to September 2014. This provision is something small business owners should push for and keep an eye on.

Tom Doherty is Managing Director and head of Business Banking at The PrivateBank. Reach him at (847) 920-3180 or tdoherty@theprivatebank.com.

Website: Learn more about financing opportunities for small businesses through our small business banking page at http://www.theprivatebank.com.

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The historical benefits of self-funded health insurance — lower costs, more flexibility and control — are even more appealing when added to the ability to avoid many Patient Protection and Affordable Care Act (PPACA) rules and expected premium increases.

As a result, there’s growing interest in self-funding. A March study by Munich Health North America of 326 executives from health plans, HMOs and insurance brokerages, found 82 percent of respondents saw more interest in self-funding, with nearly one-third seeing significant interest. The survey also found nearly 70 percent of insurance organizations plan to increase self-funding offerings during the next year.

“The PPACA has shed a light on self-funding because it created several new reasons why self-funding or partial self-funding is attractive,” says Mark Haegele, director, sales and account management, at HealthLink.

Smart Business spoke with Haegele about the reasons why self-funded health insurance is getting so much employer interest.

What historical self-funding benefits remain relevant today?

Historically, self-funded employers avoid the risk charge — typically 2 to 4 percent of the total premium — that all insurers build into premiums. Self-funded plans also avoid costs from insurer profit; premium taxes, usually 1 to 3 percent, depending on the state; and the insurance company’s fixed operating costs. A fully insured plan can include fixed operating costs that are 40 to 50 percent higher than a partially self-funded plan with a third party administrator.

Plan flexibility and control is the other overarching benefit of self-funding or partially self-funding. You don’t need to follow state coverage mandates for areas like autism, bariatric surgery and infertility treatments. Employers can customize plans based on member population needs.

Smaller, self-funded employers also receive detailed member data, resulting in the ability to make informed decisions. With the help of consultants and brokers, they can manage their population as much or as little as they want.

Why is health data more critical now?

The health care system is moving from a fee-for-service to a performance-based model, so transparency and information are more critical. If you expect members to make good purchasing choices, then employers and their members must know what services cost. This transparency is one of the staples of a self-funded plan. Employers know what services members partake in, the plan risk factors, what care those with chronic illnesses receive, etc.

What is drawing employers to self-funding because of the PPACA?

A number of pieces from the PPACA aren’t required under self-funding, including the:

•  $8 billion insurer tax, currently calculated to be passed onto employers as a 4- to 6-percentage point increase in premiums.

•  Medical loss ratio requirements, which force profitable insurance companies to reduce administrative expenses and ultimately lower service levels.

•  Community rating rules that group small employers by geography, age, family composition and tobacco use. Thus, healthy, younger insurance groups will pay more — estimated to be 60 to 140 percent — while older, less healthy member groups pay less.

•  Minimum essential benefits, where insurance companies are required to limit annual deductibles.

How are PPACA-driven premium increases already factoring in?

Although the PPACA’s community rating rules, insurance tax and minimum essential benefits don’t begin until Jan. 1, 2014, the repercussions have started. Some carriers are including extra 2013 premium increases. For example, rather than a 4 percent premium increase now, insurers might try to get employers to accept a 20 percent increase this year. In addition, despite state pushback, many insurance companies are considering offering an early renewal — changing the plan effective date from Jan. 1, 2014 to Dec. 1, 2013, for instance — to let employers temporarily avoid increases. However, those with a self-funded plan never have to worry about these costs.

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

Video: Watch our videos, “Saving Money Through Self-Funding Parts 1 & 2.”

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In this day and age, insurance is a very important line item for businesses. And you don’t want a broker who is unable to deliver results.

Managing Director David Toth, of Momentous Insurance Brokerage, Inc., says it’s critical for your insurance agent or broker to be familiar with your specific industry. If you make widgets, the broker should have experience with manufacturers. If you’re running a hospital, the broker needs experience in the health care industry.

“Experience and past performance of underwriting the business successfully is key,” he says. “You don’t want to be a guinea pig.”

Smart Business spoke with Toth about how to vet and ensure good service from your insurance broker.

What should you be looking for and asking about when vetting a new agent?

Use the vetting process to make sure you have a broker who understands your business, is responsive and shows flexibility. For example, in the entertainment field, you need special insurance enhancements and carefully crafted policy language to ensure the broadest coverage possible. You also need a broker who is capable of adhering to your wishes — it’s not how the broker wants it, it’s how the client wants it.

Ask for referrals, which most brokers are more than willing to share, rather than depending solely on a firm’s website. Also take time to meet the key people in the firm.

Inquire thoroughly about what insurance markets are available, because the more competition the broker can foster for your insurance, the better your program. In addition, inquire whether people from the brokerage sit on any of the governing boards of the carriers they represent, as this means they have influence on policy decisions and/or claims procedures.

One more point of qualification to ask a new broker is: What limit of errors and omissions insurance do you carry? If the brokerage only carries $1 million, is this enough if a broker’s mistake results in a loss to your business? Keep in mind this is the limit they carry for all clients in the firm.

Are there ways to tell if an agent provides good service?

It depends on whom you ask. Some clients might place responsiveness at the top of the list, while others need to be kept abreast of changes in the industry, including trends with insurance prices. So, for example, is the agent sharing the upcoming changes with the Patient Protection and Affordable Care Act? Has the brokerage advised you that if you’re in California your workers’ compensation rates might increase because of changes with the insurance code? Do you already know that with insurance carriers exiting the California management liability market, those lines could increase dramatically?

Other service concerns are:

•  How does the agent keep you up to date on the claims process? Does he or she regularly follow up?

•  What does the broker do in terms of your premium rates? Is he or she doing all he or she can to obtain the best rates for you?

•  Is the agent delivering the renewal two weeks prior to renewal, or waiting until the last minute? Do you feel as if you are part of the process and have control?

• How available is the agent? If it’s important to you on a Saturday, it should be important to the broker on a Saturday.

How do you know whether to stay with your current broker or to move on?

Loyalty is a great thing, but it doesn’t hurt to have another set of eyes. Ask an independent insurance broker to review your insurance program — usually at no cost — and make sure you don’t have duplicate coverage or coverage gaps, while double-checking for extra benefits and/or cost savings. And if someone else can’t improve upon your insurance policies significantly, it confirms that your current broker is doing a good job.

David Toth is managing director at Momentous Insurance Brokerage, Inc. Reach him at (818) 933-2721 or dtoth@mmibi.com.

Blog: Insurance strategies are constantly changing as the market evolves. To keep up, subscribe to our blog.

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There’s a popular metaphor referred to as “the boiled frog.” Simply put, it says if you drop a frog in boiling water it will quickly try to escape. But if you place a frog in tepid water that’s slowly heated to a boil, the frog will “unresistingly allow itself to be boiled to death.”

With the 2013 tax changes, this metaphor may apply to taxpayers, married and filing jointly, with wages of taxable income of $223,000 to $450,000, says Geoffrey M. Zimmerman, CFP®, Senior Client Advisor at Mosaic Financial Partners, Inc. These households could see their federal marginal tax rate go from 28 to 45.5 percent.

“Executives in this income range may soon find that they are in hot water with the heat on as the marginal tax rates ramp up fairly quickly,” Zimmerman says.

Smart Business spoke with Zimmerman about key tax changes as well as possible planning and investment strategies.

Why are $223,000 to $450,000 income earners unaware of the danger?

The increases come from moving up tax brackets, new Medicare taxes of 0.9 percent on payroll and 3.8 percent on unearned income, and the phase-out of itemized deductions. People earning more than $450,000 have a good idea of what’s coming, but others aren’t as prepared for 1 to 2 percent increases that can add up. For example, if each spouse earns less than $200,000, their employers aren’t required to withhold additional taxes from their paychecks for the 0.9 percent increase in Medicare. But, if their combined income pushes them over the $250,000 threshold in household wages, they may be surprised by an unexpected tax bill.

Additionally, if you live in a state like California where state income taxes have gone up, combined federal and state income tax rates can exceed 50 percent, with capital gains rates reaching 33 percent or more.

What should these taxpayers be doing?

First and foremost, don’t let the tax tail wag the dog. Tax strategies that look great in a silo may actually be detrimental to the big picture. If your strategy puts you in a concentrated position or triggers undue risk, then a sudden bad market movement can be worse than paying the taxes.

This is an opportunity for people to update their financial plan and review how the tax changes affect their goals. Make sure your advisers are talking with one another and coordinating their work and advice.

How can some key planning strategies mitigate these increases?

Look for opportunities related to the timing of cash flows. If you have a big income year where up to 80 percent of your itemized deductions might be lost, defer some itemized deductions to the following year where the income might be lower. In a low income year, look at doing IRA to Roth conversions, realizing capital gains and/or accelerating income.

Take the initiative to engage in tax loss harvesting in taxable accounts, which means you sell a security, harvest the loss and then use that loss to offset a gain in either the current year or carry forward for use in future years. This can be attractive, particularly for investing styles that offer similar but not identical alternatives. One example might be to sell an S&P 500-index fund and reinvesting with a Russell 1000-index exchange traded fund to capture the loss while remaining invested.

Review the use of asset location strategies to improve tax efficiency. Strategically place securities that produce ordinary income or that generally don’t receive favorable tax treatment into a tax-deferred account, while putting tax-efficient investments that generate long-term capital gains or qualified dividends in taxable accounts.

Municipal bonds/bond funds in taxable accounts now may be more attractive, and you also can review opportunities to take advantage of ‘above the bar’ deductions, such as contributions to qualified plans like your pension, 401(k), etc. For senior executives, contribution to nonqualified deferred compensation arrangements may be more attractive, particularly if a transition, such as retirement, is on the horizon.

With the help of good advisers who understand these moving parts and how they fit together, executives can use these strategies and others to make better decisions to move toward the things that are really important to them.

Geoffrey M. Zimmerman, CFP®, is a senior client advisor at Mosaic Financial Partners, Inc. Reach him at (415) 788-1952 or Geoff@MosaicFP.com.

Insights Wealth Management & Finance is brought to you by Mosaic Financial Partners Inc.

Cash flow management is important for business owners who need to know where they stand on a daily, weekly, and monthly basis in order to pay bills and employees on time. If, for example, a business owner unexpectedly discovers he or she cannot purchase inventory, it can shut down his or her operation, says John West, CPA, CGMA, director of finance at SS&G.

Cash flow management is a far different world for larger corporations, he says, as they tend to closely monitor cash flow and run their organizations as lean as possible — something smaller companies could learn from.

“To some degree, you’re just not exposed to it when you are a smaller company — you’re not thinking in that mindset.”

Smart Business spoke with West about how to handle cash flow management.

How does cash flow forecasting act as a warning system?

Many organizations consider cash flow on a weekly basis — looking at payables, accounts receivable, inventory, payroll, etc. By monitoring on a weekly or at least a monthly basis, businesses can foresee and fund potential shortfalls and not go out of business. For example, if they know they’re going to fall short in six months, they can obtain a line of credit or fund fixed assets.

Where do businesses get into trouble with cash flow and cash flow projections?

Fundamentally, it’s misunderstanding how cash flow and cash flow forecasting works in their operation. Problems also come from not realizing how business seasonality impacts cash flow. When receivables and inventory grow, cash is needed to cover them.

It’s important to do projections one to two years out. Many organizations don’t go out that far; they just do it on a quarterly basis. That’s more just looking at the current status as opposed to a projection.

How can companies guard against overly optimistic projections?

Payables and payroll can be fairly predictable, other than inventory fluctuations, so finance can do a great job at monitoring those. Overly optimistic projections usually come down to an overly optimistic sales forecast, so have finance take a hard look at changes, trends and new customers.

How should cash flow and shortfalls be managed?

Organizations should obtain a line of credit, even if they don’t need one. Once they run into trouble, lenders are far less likely to lend. There’s no interest charge to have available credit sitting there.

Another strategy is using a corporate credit card through the payables department. Wait 30 days to make a payment, and then put it on the card to get up to another 30 days.

Financing fixed assets is something a lot of organizations don’t do, but rates are great right now. Banks are very willing to give three- or five-year loans on fixed assets, which can help with a shortfall for the year.

It’s key for businesses to focus on collections by contacting their customer base and sending out reminder letters. Receivables shouldn’t go past their terms. If they are causing delays it could cause a cash shortfall.

Pushing out payables and extending terms is another more recent cash management trend. Some organizations send out vendor letters, stating they are pushing their payment time back X number of days. Otherwise, it’s something that could be considered when entering into a vendor agreement. Also, weigh vendor discounts against payment terms to see if the value is offset by potential shortfalls.

Finally, no one wants to say it, but it might be necessary to eliminate expenses, such as payroll, inventory and even whole product lines.

If business owners aren’t ‘numbers people,’ how should they tackle cash flow?

Businesses should calculate their projections to understand their current position, even if it takes outside accounting help. However, cash flow projections can actually be easier in small and midsize businesses because owners are more involved day to day.

If there’s a shortfall, accept it and move on. It’s hard to face the fact that there’s trouble, but it already exists. Now it’s just a matter of putting it on paper and dealing with it.

John West, CPA, CGMA is director of finance at SS&G. Reach him at (440) 248-8787 or JWest@SSandG.com.

Website: Meet SS&G’s new CEO, Bob Littman, at www.SSandG.com.

Insights Accounting & Consulting is brought to you by SS&G