When John Sheppard stepped into his role as president and CEO of EveryWare Global Inc. nearly two years ago, he knew he was faced with the difficult challenge of bringing together two ingrained cultures of two iconic brands — what he didn’t know, was that the two companies had yet to meet.
Anchor Hocking and Oneida, two of the most well-known and long-time consumer brands in tabletop and food preparation products had been purchased by Monomoy Capital Partners in 2007 and 2012 respectively, and the two companies were set to become one under the umbrella of EveryWare.
“I think there might have been a phone call at one point, but for the most part, they operated independently,” he says. “There was no discussion between them.”
Sheppard has more than 25 years of senior leadership experience with some of the world’s largest consumer goods companies, including 20 years in executive positions at Coca-Cola Co. When he came to EveryWare, he was looking for an opportunity to move back into a CEO role, growing a branded business, especially on the international side.
Sheppard was up to the challenge of turning perfect strangers into one team.
“This was exciting to me because Anchor Hocking and Oneida, particularly Oneida, are some of the best-known brands in the business,” he says. “When I came in, the whole objective was to take these two companies and great brands and combine and integrate them — so, pull together a leadership team, create a vision for the company and then execute on that.”
Here’s how Sheppard merged the companies together and took them public, creating an organization with more than $440 million in annual revenue and 2,000 employees.
Becoming one company
The first step in a merger is usually to get the management teams together and go through the transition punch list, as it were.
Sheppard began by telling them how EveryWare was going to operate moving forward. Then, he looked for strengths and weaknesses, finding the right talent and putting them in the right place.
Sheppard says he came in with an open mind, trying to meet with and listen carefully to the employees in the first few months he was there to find out where they believed the business could expand, and where it couldn’t.
“It became pretty clear where the strengths and weaknesses were, and where we had opportunities to cut costs,” he says.
“There were definitely some headcount reductions during that process, and that was natural because in any acquisition you don’t necessarily need two complete sets of SG&A [selling, general and administrative] costs,” Sheppard says.
But open communication is key — letting people know what you’re doing and when you’re doing it. Sheppard says the uncertainty is what drives people crazy.
“They would rather hear the bad news, as opposed to just dragging on, with no information at all,” he says.
Over time, it became apparent that most of the resources would be moved to the Ohio headquarters.
Sheppard says even though he’d been through many mergers and acquisitions before, you always learn as you go forward and see things you would have done differently.
In addition to making sure you communicate proactively with your board and the outside public as much as possible to avoid surprises, management changes should be made quickly if there’s a problem.
“I think probably, from a management team standpoint, I would have integrated food service and retail sooner, rather than later. I waited until last year and I probably should have done it earlier,” he says.
“So, move quickly when you know you have an issue to resolve.”
At the end of 2012, the decision was made to take EveryWare public. An initial public offering would create currency for the company, opening the door to potential acquisitions down the road.
It also was an opportunity for the private equity firm to take some money off the table. Because it owned 100 percent, an IPO allowed the firm to give back to its shareholders and partners.
Sheppard says they worked intensely for four or five months before going public under the stock ticker EVRY last May.
“That was intense,” Sheppard says. “That was a lot of midnight, 2 a.m., weekend, holidays, you-name-it meetings.”
Sheppard drew on his experience working in public companies and taking companies public to help spearhead the time-consuming and complicated transition.
“It’s quite an intense process,” he says, “It requires an understanding of the difference between a private and public company. You have to be extremely open about business, making sure you’re communicating effectively both internally and externally.”
Everyone had to come to the realization that life as a private company is a lot different than life as a public company.
“Some people found that more difficult than they would have thought,” Sheppard says.
“It’s probably not a great place to start trying to learn — right when you get thrown into the middle of a public offering,” he says. “We had some learning curves with some of the finance people, as they were learning the systems and processes and how to go public and all that. But we had a lot of hardworking people in finance and everywhere else.”
Expanding to new markets
After two major changes over the past two years, Sheppard says the company’s biggest challenges now are execution and focus as management works on a number of initiatives.
EveryWare has begun to expand into new categories, launching new products and SKUs.
“We entered into Brazil, Korea and expanded our business into Mexico and China,” Sheppard says. “And we also added a bunch of new customers in 2013, and we’re also starting to announce some in 2014.
“We’ve really started to grow the brand — expanding both horizontally and vertically. We’ve expanded our current customers and we’ve added new customers.”
EveryWare sells tableware, flatware, dinnerware, beverageware and serveware to retail outlets like Wal-Mart, Target and Bed Bath & Beyond. It also sells to hotels, restaurants and cruise lines.
Sheppard says the top-line growth was about 5 to 6 percent in 2013, which is three times the industry rate.
“International is driving a lot of that. International drives a lot of the growth — that’s because of both new markets and doing better in existing markets,” he says.
Again, Sheppard can draw on his 12 years of experience running Coca-Cola’s operations in Africa, England, Poland and Austria to help guide global moves.
The company chose to enter Brazil and South Korea for a number of reasons: the two countries have a $1.2 billion tabletop market and there are not many Western companies there, though both have relatively stable governments and a strong affiliation towards American goods.
EveryWare also wants to focus on penetrating new U.S. channels.
“Our retail business will be focusing on clubs, department and grocery stores, and in new product innovation, where we launch new SKUs,” Sheppard says. “Internationally, we’ll be opening new markets. In food service, we’re really focused on driving our placement of new products in restaurants and hotels. We’re excited about that. That’s going to be the focus going forward — profitable top-line growth.” ●
- Communication is key.
- Going from a private to public company requires new thinking.
- Finding the right international markets will drive top-line growth.
The Sheppard File:
Name: John Sheppard
Title: President, CEO and director
Company: EveryWare Global Inc.
Born: Washington, D.C.
Education: Bachelor of arts in marketing at the University of Georgia, master’s degree in business administration in finance at the University of Georgia’s Terry College of Business.
What was your first job and what did you learn from it? I was in graduate school and saw an ad in the paper for Coca-Cola about an IT job, a systems job. I didn’t really know what system they were talking about, but I read up on it and got familiar enough with it so that when I went into the interview, I could talk about it. It was a financial IT package that I had used a little bit in graduate school.
So, I expanded my knowledge of the financial software package and got the job at Coca-Cola. After I became an expert on that software, I moved on to more regular financial analysis and financial management, eventually going overseas as the CFO of the Africa division.
I got my foot in the door at Coca-Cola, which is what I wanted to do. I knew once I got in, I could probably find my real calling in life.
Who do you admire in business? I’ve met so many. I met Bill Gates a couple of times. I really like that he was tough and always saw the end game.
I also joined a group called YPO, Young Presidents’ Organization, which is a worldwide organization. That brought me in touch with a lot of different executives around the world in a similar position. It was sort of networking for senior executives.
What is the best business advice you ever received? Listen well and base your decisions on facts, and then act decisively. Don’t waffle.
When you’re the leader, you listen, you gather the facts and then you act decisively. That’s what leaders do. They need to do that because then people will follow them.
Learn more about EveryWare Global Inc. at:
Big data, little kids: Highlights for Children leverages customer data to provide great experiences worldwideWritten by Adam Burroughs
Highlights for Children might be best known for its Highlights magazine, which many children — and before them their parents and their parent’s parents — get at school or thumb through in doctors’ and dentists’ waiting rooms across the U.S.
While it’s proud of its past, the company has invested heavily in its future, propagating its brand internationally to reach children across the world. As it grows its presence and its products, the company is studying its customers and consumers, adapting its processes, expanding digitally and aligning its focus on the customer experience.
“We’ve definitely shifted from being a magazine-focused company to putting the customer at the middle of our thinking; we like to think of ourselves today as a family media brand,” says Shelly Stotzer, executive vice president and chief marketing officer for Highlights For Children.
Highlights breaks its audience into two segments: its consumers, who are the children from ages 0 to 12 who use its many products, and its customers, who are “almost anyone who is part of the village of raising a child,” Stotzer says. That includes parents, grandparents, aunts and uncles, teachers, doctors, caregivers and anyone else who is helping raise a child.
“We see people who buy from all demographics, all backgrounds, all different types of professions,” she says. “We definitely have a very diverse market.”
The company has a stronghold in the U.S. market, and has spent the past four years working to establish its brand across the globe. Today the company has a presence in Korea, Brazil, Ireland, India, Poland and China, putting some 4 million products in the latter country this year, compared to a few thousand in years prior.
Reaching all those countries means the company has had to expand its infrastructure, working with local partners in foreign markets to adapt its products to each one’s specific culture and people.
“We find great partners who we trust, we work closely with them to make sure we stay true to our mission, and then we adjust to make sure we’re appropriately meeting expectations and needs,” Stotzer says.
Highlights has also expanded its digital presence, providing children’s content on the Web for the past 10 years, and launching apps as far back as five years ago.
“Each day we learn something new,” she says. “The technology is changing so quickly. It wasn’t long ago that there weren’t many children’s books available in e-book format, but there are today.
“Children are not only downloading them but they’re also borrowing them from the library in a digital format.”
That means the company has had to keep its eye on the market to understand the needs of its consumers.
Putting customers first
Monitoring customer behavior serves multiple purposes for Highlights, such as helping its shift in philosophy from product-centric to customer-centric, in part to improve customer service.
“When we were product-centric, we were focused on how to increase sales or improve the experience within that product experience,” Stotzer says.
The company’s more recent customer-centric approach focuses entirely on the purchase and service experience.
“It says regardless of which product you buy or which channel you buy it through, we want to make sure that the infrastructure we’re putting in place, the processes, the experience is consistent and positive across that entire experience,” Stotzer says.
Illustrating the difference from one approach to the other, she says if someone bought a book from a retailer and they had a question about it, they could call an 800 number. But if that same customer on the same call had a question about a different product, they would need to be transferred or call another number. Today, one customer service staff at one number serves all its products.
“I believe that repeat buyers come from good customer experiences, good brand impressions. What necessitated it was recognizing that if we want to be as successful 60 years from now as we are today, if we’re going to get into all these new products and markets, we need to make sure we do it well.
“Simply saying if I’m a customer of Highlights, this is how I want to be treated, and if I want customers to come back this is what we should expect,” Stotzer says.
This approach is particularly important as the company continues to grow its product offerings from magazines into toys, merchandise, books and mobile apps while simultaneously building on its direct marketing approach by adding e-commerce and retail, all along with developing strategic partnerships in foreign markets.
“By doing so we needed to really pause and make sure every interaction, how we made decisions, how we set up our teams, how we engage the customer really reflected what we wanted it to reflect, which was a consistent, positive, customer experience,” Stotzer says.
Gaining greater insight
Taking that time to reflect led Highlights to establish its customer insights team, which was put in place to not only help the company provide better customer experiences, but also to leverage customer and market data differently.
“We have always done a good job of doing market segmentation for direct marketing,” she says. “We’ve always done a good job of understanding the profitability of our sources.
“But our customer insights team kind of flips that information on its side and allows us to look at who are our best customers across all the different channels we sell through — all the different product formats that we sell, who our best customer is, who is most likely to buy another product once they’ve bought our Hello magazine, who is most likely to transition into our High Five and into our Highlights, but then who also might be buying an app or some other type of product that we have to sell,” Stotzer says.
Highlights’ marketing database tool enables the company to better understand its customers’ experiences and life cycles across all of its products.
“So with the new database, it is structured in a way that the customer view is the first view that we see,” she says. “It provides a lot more flexibility in slicing and dicing that information so we can make good decisions. It also allows us to effectively target the right message to the right customer at the right time through the right channel and allows us to track that in a very visual way.”
The database further allows Highlights to track customer purchases and marketing, which permits more trigger and automated marketing that makes it easier to follow up with the right transactional, sales or content touch point at the appropriate time.
Chasing a vision
The customer insights team also fielded Highlights’ first brand study this past spring. The study was an effort to understand not only what customers think, but what potential customers who aren’t engaging with Highlights today think and how Highlights might change their perceptions over time.
It’s also a step toward helping the company transition from being known primarily as a magazine for children in the U.S. to an international family media brand — “A customer-centric, global, multichannel, family media brand,” Stotzer says.
She says the study was a starting place that established where the company was and compared it to where it wanted to be.
“We really put ourselves up against brands that we looked to as family media brands,” Stotzer says. “In the study, we did not put us up against brands that we felt were our historical competitive set where we might have been the leader in the group. We really wanted to create an aspirational set that would help us understand where we sit compared to those.”
She says she was happy with the results.
“I’m quite proud of what we’re known for. If you look at the characteristics that people think of us, they are right where we want them to be. We’re known as wholesome. We’re known as good for children. We’re known for being respectful. We’re known for a lot of the characteristics that we’ve strived to be known for.”
Highlights will repeat the study annually to track its progress against its benchmarks.
“We have a lot to build from, and that was helpful because there’s so much noise in the world today, you’re not sure where you really sit, but it was really helpful to know that we have a great foundation to build on,” she said.
The company is looking forward to spring boarding from that foundation to the next level.
“The world is a big place,” Stotzer says. “We have plenty of countries and plenty of children all over the world who we can reach with the products we have, and we’re also continuing to add several products a year to our portfolio.
So we need to do all those things while also keeping an eye on the changing digital market and the changing needs of children.” ●
Find out how Highlights for Children is creating a comprehensive Web and social media strategy for all digital platforms
Learn more about Highlights for Children, at:
The Payroll Fraud Prevention Act of 2013, introduced in the Senate last fall, seeks to reduce intentional misclassification of employees as independent contractors.
“It clearly reiterates that it is on the federal government’s radar and that they are concerned about misclassification,” says Brendan Feheley, a director at Kegler, Brown, Hill + Ritter.
IRS and Department of Labor (DOL) officials also are aware that the employer mandate in the Affordable Care Act (ACA) may provide more incentive for businesses to classify workers as independent contractors to avoid providing health insurance.
“It’s going to be a heightened issue in 2015 as it relates to health insurance,” Feheley says. “I think the government is trying to get ahead of the issue and increase penalties for misclassification so it doesn’t look like an attractive option.”
Smart Business spoke with Feheley about employee classification and what businesses should do to ensure legal compliance.
How would the proposed legislation increase penalties for misclassification?
New civil penalties of $1,100 will be imposed for each affected individual, and $5,000 for repeated or willful violations. Plus, you would also need to pay for overtime underpayments or other damages related to the misclassification. Also, the Fair Labor Standards Act allows for recovery of attorneys fees for the plaintiff’s lawyer.
You can envision a scenario in which someone not covered by company health insurance has a medical condition and files a claim saying they’re really an employee and have been misclassified and are entitled to coverage, as mandated by the ACA.
What should businesses be doing regarding classification of workers?
First, look at your industry. If it’s known for using independent contractors — for example anyone using installers, or those in the hotel industry — the DOL has been targeting them. Businesses in these industries may want to take a more conservative approach to classification and make independent contractors part-time employees or seasonal workers.
Companies should audit their workforce and review the independent contractors being used and the work they’re doing. Many times people are initially classified as independent contractors and the relationship evolves so it’s very different from when they first signed on.
How do you determine whether someone is an employee or independent contractor?
There are no absolute rules, but there are tests the various agencies use. The IRS has a 20-factor test, while the DOL’s test has six factors. The few that cross over are the ones that warrant the most attention, and those really go to who has control over what the individual does — setting work hours, determining how the work is done. The more control the company has, the more likely that person is an employee.
Another important factor is whether there is opportunity for profit or loss for the contractor. A contractor typically can profit by finishing a project in less time, while a person paid an hourly wage is more likely an employee. Independent contractors typically are expected to bring materials they need; if you supply equipment and they’re working in your facilities, you’re closer to having a problem.
Another major consideration is whether the contractor’s activity is vital to your business. A cable installer is not an ancillary part of the business, for example. Last November, the DOL settled with a Kentucky company that paid $1.5 million in violations relating to misclassification of cable installers.
If you’re using independent contractors, have an agreement that states everyone agrees on that status. Then think about the permanency of the relationship.
Because there are no hard and fast rules, it’s important to pay attention to your industry and how things are done.
Companies that have the hardest time regarding classification are startups, because they don’t have money to bring people on payroll but what those people are doing is very integral to the company’s interests.
Misclassification is not always intentional, but because it is a tax issue the government is taking a closer look and a more skeptical view. ●
Insights Legal Affairs is brought to you by Kegler Brown Hill + Ritter
Smart Business spoke with Phil Scott of Sequent Retirement and Benefits Group about trends for plan sponsors.
What are some areas of growing interest and focus for plan sponsors?
One area that continues to be explored is automatic contribution enrollment and automatic contribution increases as ways to boost participation.
By providing better education and communication platforms, plan sponsors are enabling employee participants to be more prepared for their retirement.
Finally, plan sponsors are continuing to keep a close watch on their administrative duties and regulatory requirements.
What are plan sponsors doing to help protect themselves and manage fiduciary risk?
They have leaned on third-party administrators, recordkeepers, investment advisors and legal counsel to identify their responsibilities to maintain plan compliance.
Companies that have embraced outsourcing elsewhere in their organizations have also outsourced segments of their retirement plans to 401(k) fiduciaries. That can be 3(38) investment advisors, who assume responsibility for monitoring, maintaining, selecting and removing investment plan options; or 3(16) advisors, who accept responsibility for plan administrative functions.
Some plan sponsors have adopted or explored the option of joining a 413(c) multiple employer plan. The multiple employer plan option provides an alternative for companies seeking relief from the burdens of independently operating and maintaining their own plan.
How do safe harbor plan designs create advantages?
One great advantage for participants is that all employer matching and non-elective contributions vest at 100 percent immediately. Also, all participants, whether they’re considered highly compensated or non-highly compensated, are allowed to maximize their elective deferral limits. Elective deferral limits, set by the IRS in 2014, are $17,500 for those age 49 or under and $23,000 for those age 50 or older.
Without safe harbor protection, highly compensated participants would only be able to defer approximately 1.5 to 2 percent more than the average contribution of the non-highly compensated group.
From a plan sponsor perspective, safe harbor plan designs are great tools for recruitment and retention of top talent. In addition, the IRS permits a safe harbor plan to be top-heavy, meaning that 60 percent or more of plan assets are attributable to key employees: an officer of the organization, whose annual compensation exceeds $170,000; any employee, who owns more than 5 percent of the company, or owns more than 1 percent and has an annual compensation exceeding $150,000.
What are the implications if a plan is deemed top-heavy?
The plan must meet minimum contribution and vesting requirements for non-key employees for each year the plan is top-heavy. The minimum contribution to bring the plan back into compliance is the lesser of 3 percent of annual compensation for all non-key employees or a percentage equal to the highest percentage contribution of any key employee. Top-heavy penalties are painful infractions, which plan sponsors are able to avoid when utilizing safe harbor as a strategy within their compensation and benefits package. ●
Phil Scott has over two decades of experience in the financial services industry. He is a registered representative with LPL Financial and investment advisor representative with Advantage Investment Management.
This information is provided as a courtesy and should not be considered specific advice or recommendations for any individual. Please consult your tax professional before taking any specific action. LPL Financial nor Advantage Investment Management are engaged in the rendering of tax or legal advice.
Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Advantage Investment Management, a Registered Investment Advisor and separate entity from LPL Financial.
Insights HR Outsourcing is brought to you by Sequent
Health care used to be one of the more scrutinized types of insurance, but that’s no longer part of the landscape.
Under the Affordable Care Act (ACA), the only criteria that determines price for small group health insurance is date of birth, zip code and whether you smoke or not — making it one of the few insurances where risk isn’t really considered, says Pete Seminaroti, vice president of the Healthcare Division at SeibertKeck Insurance Agency.
But even in the ACA era most business owners need a competitive health plan.
“Why do employers provide benefits? Not only to retain the employees they have, but also to entice a strong candidate as a new employee. Employees look beyond wages to health benefits,” Seminaroti says. “Benefits are important to retain and hire good people, and that still overshadows the other issues.”
Smart Business spoke with Seminaroti about trends in Ohio health insurance.
Who needs to buy health insurance?
Practically everyone needs to purchase insurance, either as an individual or group. If your employer doesn’t provide coverage, you need to enroll for an individual plan.
As business owners, the ACA has changed the rules for providing coverage. If you employ two to 49 full-time equivalent employees, you aren’t required to provide insurance as a small business. If you have 50 to 99 employees, you are considered a large group and need to provide insurance by 2016. Those with 100 or more employees must provide insurance by 2015. Failure to comply will result in government penalties.
What are the biggest factors to consider when purchasing health coverage?
Obviously, pricing drives most things, when we make a purchase privately or corporately.
Another large factor is the benefits structure. More than ever business owners want to ensure their network of providers, doctors, hospitals and medical facilities is strong. The insurance options have narrowed in the small group market; before, you might have had 50 to 70 choices, and now, it’s been simplified to about a dozen.
An owner also wants to go with a quality company that processes claims efficiently, with few errors. Typically the industry has done a good job of that. When you consider how many claims are processed daily, the number that go awry is minimal.
Finding the right insurance is easier when business owners can draw from their health care adviser’s knowledge. This ensures the owner has their choice of plans with the proper coverage and good network at a price within their budget.
With limited underwriting, are prices rising more than usual? Wasn’t Ohio projected to face large increases?
Over the past couple of years, there was a lot of that going around — Ohio was projected to increase anywhere from 40 to 80 percent.
In truth, some rates have gone up significantly, while other small groups have benefited from the ACA. An increase or decrease can highly depend on your small group’s makeup. In the past, if you had a group with high utilization, you were forced to stay with the same carrier for multiple years and your rates would increase. Now, that same group cannot be penalized because risk is no longer a factor.
What other tools are available to help?
In Ohio, we have a co-op that’s starting to bid out to small groups. It’s supposed to cost 10 to 15 percent less because it has eliminated the top layers of an insurance company. The co-op is run by a board of trustees comprised of the companies that have plans with that co-op. It will be interesting to see how the first year goes. If it’s successful, more co-ops may start.
There has been more interest in certain levels of self-funding. The self-funding industry came out with new structures that don’t expose employers to as much risk. It’s also a way to avoid some of the ACA taxes.
The health care insurance environment will continue to change over the next five years, and having a knowledgeable agent will be crucial in navigating the best course of action. Currently, most businesses still need to offer health insurance, and many employees, given the choice, would prefer for their employer to pick the health plan. Working with your trusted health care adviser, you can create a plan that will work for both the company and offer solutions for the employees. ●
Insights Business Insurance is brought to you by SeibertKeck
It can be more than a full-time job to keep up with technology as it evolves, and smaller and midsize entities that tend not to have dedicated technology staff can face even more acute challenges.
So many changes occur, it’s hard to know what’s available, says Paul Karlin, M. Ed., director of Education Technology & Services at Blue Technologies Smart Solutions. Also, you must train staff and invest in maintenance to keep technology from sitting around unused or broken.
At the same time, organizations need to continually budget for change.
“They’ll say, ‘OK, we’re done. We’ve got a great network and computers,’” Karlin says. “They don’t realize that it’s going to be three, four or five years, and then they have to do it all over again. It’s an ongoing need that has to be budgeted for every year.”
Smart Business spoke with Karlin, who helps schools integrate technology into classrooms and buildings, about how all entities can stay on top of technology needs.
How are schools and classrooms using technology today?
Schools like any organization use technology to conduct business — from keeping track of attendance and grades to payroll, accounts receivable, marketing and communication. And like the corporate world, the right technology maximizes efficiency and employee productivity, while reducing costs.
In addition, whether your classroom is in the educational world or corporate America, technology can improve learning. It’s a vehicle for direct instruction, such as Internet research, educational software or apps. Another use is assessment. In schools, based upon Common Core Standards, groups of states are adopting national tests given on computers, driving schools to update bandwidth.
Technology also is used as a tool to solve problems, create things and be more productive. This higher-level learning, when educating students or employees, isn’t just reading material and taking a test. For example, when learning about global warming, a science teacher challenges students to come up with energy-saving devices, using computer modeling and 3-D printers to develop prototypes. It goes beyond comprehension to becoming part of the dialog of how to make the world better.
What do you recommend as the way to best keep up with technology changes?
There are two overarching strategies. Entities can invest in their own technology staff. If they are large enough and have the resources, it’s a good way to go. But the technology field is very competitive, with IT people moving from job to job. If your key tech person puts in his or her two-week notice, it can leave you scrambling.
The other strategy is to build technology partnerships. Your technology partner can use proven business practices, which in IT includes monitoring, providing a help desk, having disaster recovery, ticketing systems to track problems, etc. You don’t have to worry about retention, and there’s no knowledge gap. You’ll get regular updates on what’s working, what’s not and what’s coming to help inform your decision-making.
Technology partners usually don’t just consult; they deliver products, and provide equipment, services and training. Their middle name has to be accountability, because if they don’t get it done, they aren’t going to be around anymore.
How can organizations prioritize updates or new technology?
The latest technology fad shouldn’t drive updates. For example, organizations are implementing one-to-one computing, where there’s a computer for every person. But if that takes too much attention away from instructors in an educational setting, it may not be a good fit. First, understand organizational goals and needs, and then match those to updates or new technologies.
Consider how to improve efficiency and reduce costs. You may save money by introducing a new technology like server virtualization — five servers function as 20, via software, to reduce support and energy costs. Also, determine if introducing a software package or process will save time or allow staff to focus on their core roles.
Whether it’s technology change or any other change, don’t jump on the bandwagon. Start with the need, problem and/or goal before you come up with solutions. Technology is not going to fix everything; it’s just a piece of the answer. ●
Insights Technology is brought to you by Blue Technologies
The employee benefit procurement process, sometimes called marketing, has changed little over the past 25 years. This continues to frustrate many organizations looking for transparency, and potential cost savings, when procuring life, disability stop loss, dental, vision or pharmacy benefit management coverage.
Formal Requests for Proposals (RFP) may travel by email, but the underlying process is the same; insurance carriers simply send an image of the paper proposal that they would have dropped off years prior. The interpretation, presentation and, most importantly, negotiations haven’t changed, says Matthew R. Huttlin, vice president in the Employee Benefits Division at ECBM.
Almost a decade ago, a major insurance scandal in New York uncovered bid-rigging and anti-competitive activity within the opaque procurement process.
“The industry agreed to reform and become more transparent, which they did to some extent, but procurement activity remains a bit of a ‘black box’ process that continues today,” Huttlin says.
Smart Business spoke with Huttlin about the future of employee benefits procurement — a reverse auction.
What problems still exist today?
The process is clearly still antiquated and fraught with opportunities for mistakes. Business owners often negotiate without solid documentation. Broker/consultants, as well as their clients, continue to see proposal mistakes, missed deadlines, inaccurate proposals and presentation revisions.
Also, insurance carriers market to their strengths, as opposed to conforming to client requirements, which may lead to misinformation, more work, mistakes and increased costs.
How can business owners better obtain employee benefit coverage lines?
An online version of a reverse auction, or Dutch auction, cuts to the heart of the problem by introducing technology to the process while maintaining the business owner’s control of the outcome. This type of auction works opposite of a normal auction — instead of bidding up the price of an item, the auction bids the price down.
What are the benefits of this method?
This process is:
- Prescriptive — RFPs are standardized, specifying the client requirements. Carriers respond using pre-determined plan specifications.
- Efficient — Carriers get complete, consistent data on which to act with agreed upon timelines.
- Transparent — Clients receive documentation on every step from the initial offers to the final pricing.
- Effective — The online system delivers the RFP to more markets, garnering more accurate quotes that are immediately posted for analysis.
How exactly does this reverse auction work?
There are four phases to the procurement. In the RFP development/submission phase, the RFP is placed on a secure website under a standardized format and peer reviewed to ensure accuracy. Once released, carriers are notified to go to the website to obtain all of the relevant information to prepare their proposal.
During the technical evaluation/initialpricing phase, carriers post proposals into the system for evaluation. The broker/consultant reviews the vendor confirmations and deviations to the requested scope of services, confirming plan design features, alternatives and administrative capabilities. The carrier also posts its initial pricing.
Then, all carriers receive feedback as to their ranking by their initial pricing in the financial evaluation/secondary-pricing phase. Actual rates aren’t shared. Over the course of a set period, usually two days, carriers can revise their pricing offers. Every time a new offer is submitted, all carriers are notified of the new ranking order.
Once the financial evaluation is complete, clients review the detailed results in the evaluation/selection phase. This review can include finalist presentations, site visits, etc. The client maintains full control over the selection process. Business owners aren’t required to select the lowest bid, but rather the carrier that best fits their requirements.
This high-tech approach is an efficient and effective way to handle procurement that provides accurate, transparent and documented results while driving prices down in a timely fashion. ●
Insights Risk Management is brought to you by ECBM
More Ohio employers are becoming financially stable after the Great Recession. These same business owners are earning high compensation and looking for additional ways to defer taxes. This has led to an increase in companies desiring to start a 401(k) plan.
The 401(k) plan is not only good for retention and recruiting, it’s also a great way to lower taxable income. Plans today are a good blend of benefiting both rank-and-file and highly compensated employees.
“However, when designing the plan, a big pitfall is when an employer doesn’t understand the provisions and how to operate the plan going forward — that can get plan sponsors into a lot of trouble,” says Heather Taylor, QKA, QPA, Manager, Sales and Business Consulting, at Tegrit Group. “Sponsors must stay engaged after the plan is implemented. It’s not just quickly scanning the document and signing. You really need to understand it, because the biggest risk is not operating a plan the way it’s written.”
Smart Business spoke with Taylor about what to know when setting up a 401(k) plan.
What common mistakes do you see when plan sponsors set up 401(k) plans?
Plan sponsors should consult with a third-party administrator (TPA) or consultant to identify a plan design that meets the company’s needs. Too often, providers put plan sponsors in a design that may be easy to administer but does not necessarily meet their goals and objectives. Don’t let a provider put your plan into a ‘box’ to make their job easier. If someone isn’t taking the time to sit down and talk through what you want to accomplish in detail, it’s a sign they may not implement the right plan for you.
Remember to take advantage of annual tax credits. Companies with fewer than 100 employees starting their first qualified plan are eligible to receive up to a $500 tax credit each year for the next three years to offset start-up and installation costs. Employer contributions may be deductible as well.
During the start-up process, don’t rush. Why would you want to offer a bad 401(k)? Ask lots of questions and take time to understand the plan’s limits, testing, reporting and required disclosure notices.
Be sure to give a complete picture of your organization, including discussing other entities you own or plans to acquire or merge with other companies. The more information you provide, the better. You may not think it’s important, but let the experts decide if it’s relevant. For example, controlled group and affiliated service group testing is complex. Your TPA will need to determine if employees at the holding company or other organizations you own (if you are above certain ownership percentage thresholds) must be included in the plan.
What’s key to know about employer contributions?
If you’re setting up a safe harbor plan, employer contributions are mandatory. Take a survey to see which staff will make contributions to get an idea of what your obligation is going to be. In contrast, many traditional 401(k) plans have a discretionary match or discretionary profit sharing contribution, which isn’t required every year.
Safe harbor plans are more common today. They allow highly compensated employees to put away maximum contributions without plan testing. It doesn’t bypass all testing, but is a good option if you’re concerned about discrimination.
Once the plan is set up, what’s next?
You can rely on the experts to perform the above functions, but review the plan regularly. Be aware of and adhere to:
- Not giving participants investment advice.
- Timely deposits. For plans with less than 100 participants, the employee deferral deposit time frame is seven business days from the time the payroll is effectively segregated from corporate assets.
- ERISA fidelity bond coverage. Persons handling plan funds or other plan property generally must be covered by a fidelity bond to protect the plan against loss resulting from fraud and dishonesty.
- Compliance requirements to avoid penalties and fees.
- Maintaining updated salary deferral and beneficiary designation information.
You’re also obligated to ensure employees who have satisfied eligibility requirements are given the opportunity to participate by the effective date of the elective deferral component. Failure to do so can be costly in terms of lost earnings and penalties. ●
Insights Retirement Planning Services is brought to you by Tegrit Group
Big data can reveal many opportunities for improving your business, but extracting the precise information you need can be a struggle.
“Some companies today have more than 30 years worth of data. Their databases are so large that it’s difficult to get a handle on them,” says Joe Welker, CISA, IT audit manager at Rea & Associates.
Using data analytics software, auditors can analyze the data and prepare reports that enable companies to improve inventory, billing and other processes.
“It allows us to be more efficient, which means lower cost for companies because less time is spent on the audit,” says Michaela McGinn, CPA, principal and director of audit services at Rea & Associates.
Smart Business spoke with Welker and McGinn about how the software functions and the benefits it can provide.
How does the software work and what information does it allow you to find?
McGinn: It’s designed for auditing and is used to find missing vendor address information, vendor payment summaries, duplicated invoices and payments made to vendors with missing address information, to name a few. Reports given to us by a client are imported and converted, allowing us to see the data field by field. For example, we can look at inventory numbers of what the company has now compared to what it had three years ago.
Welker: I just finished an audit in which we imported accounts payable and payroll check registers into the software. We went through that data to see if there were any gaps in check numbers or duplicate checks. We also profiled the data in order to give the company a summary of payroll check registers. This allowed management to see how many times a person was paid and their net pay for the year. It was a new way for them to analyze the data.
So the software makes it’s easier to locate the specific data you want?
Welker: Yes, because you’re reviewing 100 percent of the data rather than picking a sample. In one instance, a company had 8,000 vendor accounts built into their system. How do you control that? What if the same invoice is paid to two different vendors, either accidentally or intentionally?
Ultimately, we found that they had 900 duplicate vendors. The software was utilized to look at the check register to see if any payments were made to both vendors — through the main account and the duplicate. Since names don’t have to be spelled exactly, anything that is close came up. That helped the company identify anything that was out of line or looked like it shouldn’t be paid.
How do you know what to look for?
McGinn: It a good rule of thumb to look for the worst. Not everyone is embezzling or committing fraud, but it happens. The best way to stop that behavior is to let everyone know that someone is watching. Controls sometimes become lax and you never know when someone will get into a situation where they’ll do something they might not otherwise do.
Welker: As a result of audits, controls are usually tightened and we’ll provide suggestions. In the case of the client with 8,000 vendors, it was important they heard about potential problems that can result from that scenario. Data analytic software was able to provide a list of the vendors they had transactions with in the last five years so they could clean up the master file.
What types of businesses can benefit from an audit using this software?
McGinn: It can be used in small- to medium-sized businesses of every type. The benefits go beyond just identifying fraud — finding inefficiencies and areas of cost savings are two big reasons for an audit. Many larger companies have their own internal audit departments to analyze data, but most other businesses don’t have access to this type of analytics.
Welker: A statistical analysis of data for things like increasing costs, missing inventory and invoicing can help a business substantially. And once a company’s data is inserted into the software, the process is easier the next time. Results are produced in minutes, saving time and money. ●
Insights Accounting is brought to you by Rea & Associates
Companies are valued based on a formula that takes into account cash flow and the multiple that a buyer would be willing to pay. Increasing the value of a business amounts to finding ways to affect those two factors.
“Certain businesses, like a developer investing in land, are valued based on how much their assets are worth. But 90 percent of companies are valued based on their cash flow. So you need to increase cash flow if you want to increase the value of the business,” says Mario O. Vicari, a director at Kreischer Miller.
Smart Business spoke with Vicari about how owners can make businesses more valuable.
What is the formula for determining the value of a company?
Essentially, the two components are how much cash flow the company produces and what multiple a buyer will pay. At a very basic level, a business with a cash flow of $100,000 that finds a buyer willing to pay a five multiple would be worth $500,000.
The multiple is based on the risks associated with the cash flow, which is principally concerned with how sustainable and predictable it is. If a company derives its income from having to bid and win contracts, that cash flow is difficult to predict. A business that has more repeatable revenue, like a building maintenance contract that reoccurs every year, would represent a lower risk and a higher multiple.
What are some steps to take to increase cash flow?
Consider ways to increase revenues, lower costs, or both. At the highest level, that involves looking at your sales plan and marketing programs. Where are the best opportunities for sales growth? Can you sell different things to your existing customers through line extensions or take market share by attracting new customers through a targeted marketing effort or geographic expansion? Pricing and margins are also a significant consideration because sales growth without appropriate margins will not create value in the business, since cash flow will not increase. On the cost side, some consideration should be given to your cost of sales and making sure that your direct costs are optimized and throughput is high. Overheads should also be looked at closely to ensure that costs are optimal to support the sales growth the company is targeting. Overheads can be tricky, since a reduction has a direct impact on the current year cash flow but too much cutting can affect the business’s ability to grow in the future.
It comes down to how you manage your income statement, and how you drive net income through some combination of growth and more efficient use of resources.
How can a business owner lessen risk and increase the multiple?
There are several things an outside party will look at when considering risk associated with a business’s cash flow. If your customer base or product line is not diversified, that’s a much riskier situation because the loss of one big customer or a product would significantly affect the cash flow. If that’s the case, you should consider how to diversify your customer list and product offerings to manage that risk. Supplier concentrations can also increase risk and, where possible, you should diversify your supply chain.
An often overlooked risk is the depth and breadth of the management team and whether you have a succession plan. A company might have good cash flow, but if too much responsibility revolves around the owner it’s not going to be worth as much because it’s not sustainable if the owner were not there. Good management systems and qualified staff can add a lot of value to a company because they increase the likelihood of the cash flow being sustainable. Lastly, there is one element that fits into both cash flow and risk categories — utilization of assets. If you can turn over assets like receivables and inventory in 60 days instead of 90, that means you need less money to finance those assets and your cash flow increases. Additionally, efficient utilization of fixed assets also is important because a company has more cash flow and is more valuable if its reinvestment rate in fixed assets is lower.
For most private companies, the business is the owner’s primary asset. We encourage business owners to look at the business as an investor would and think about these value drivers so they can ensure they are increasing the value of their biggest asset. ●
Insights Accounting & Consulting is brought to you by Kreischer Miller