Savvy CEOs are taking advantage of the slumping commercial real estate market by evaluating whether their space meets their needs while the cost to buy or lease is low.
Commercial real estate prices fell again in the second quarter, showing an 18 percent national decrease compared to the previous quarter, according to Massachusetts Institute of Technology Center for Real Estate’s index. The drop placed the price index 39.2 percent below its 2007 second quarter peak.
Clearly, the market is experiencing volatility, but opportunities are presenting themselves.
“Tenants and buyers are in a great position, and it will probably be this way for another 12 to 18 months at a minimum,” says Andrew Ewald, member of the Tenant Advisory Group, Grubb & Ellis/BRE Commercial.
Whether you’re searching for a new property or hoping to reconfigure space for efficiency’s sake, cost savings can be yours. The first course of action is to connect with an experienced commercial real estate broker to weigh your options because there are plenty of them.Debate to buy versus lease
The decision to buy or lease property has less to do with the current state of the market and more to do with each company’s individual circumstances.
Think about your industry, your strategic plan, your company culture and what those will look like five or 10 years from now, then add the amount of capital you have for discretionary spending. Most companies lease to stay adaptable.
One of the bigger challenges facing the market today is that the capital markets are at a standstill, leaving few lending opportunities. The loan-to-value ratio has changed dramatically. Once, you were putting 10 percent to 30 percent down for a loan; today it might be as much as 50 percent.
“It’s a great time to buy as values are significantly less today compared to two to three years ago, but I think it’s going to be an even better time to buy in the future,” says Travis Carter, senior associate, Irving Hughes Inc. “I think the market values are going to continue to be going down, and I think we’re going to see more distressed assets coming available in the market in the next 24 months, which is going to drag the overall values down.”
It’s important to work with your broker to analyze your options and ensure the best deal, especially because prices and volatility vary by market and even within markets. Renting sublease space may even be the way to go because it’s cheap, but be sure to investigate the leaser’s financial standing before signing anything.
No matter what your decision, you’ll more than likely see savings because sales prices have fallen and landlords are becoming more and more creative with incentives to retain and attract tenants.Renegotiate your lease
If your lease has been tucked away, dust it off and read the fine print. Renegotiating your lease can lead to immediate savings and even allow you to get better use out of your space. Again, the returns may vary based on your landlord’s willingness to bargain, but your market insight can be used as leverage.
Before you go to your landlord, there are a few questions to ask yourself. First, how much time do you have left on your lease? A prime time to renegotiate is when there is two or three years left on your lease.
Second, how much time do you commit? If you discuss the popular blend and extend deal, where you sign a lease extension in exchange for reduced rent, you have to think about whether the space will continue to meet your needs for that length of time.
Third, can you give back or add space? If you’re cash-strapped or your company has reconfigured its employee base, maybe you can work the renegotiation in a way that better uses your space, such as adding or subtracting square footage.
Fourth, use your broker to research your landlord’s financial position, such as insight on how large the mortgage is and whether your landlord has good credit.
“I think you have to just do your due diligence,” Carter says. “Just understand maybe what their debt is on the building, how many properties do they own in the area and how are those properties holding up in this market.”
Fifth, research your options in the marketplace. Even if staying makes the most sense, at least you can present your landlord with the possibilities that wait should you leave. Some tenants are offering free rent, moving allowances and increased tenant improvement dollars.
“There’s really limited tenant activity, there’s an abundance of options, so you want to create a competitive environment where landlords are fighting for you tenancy even if you think a potential renewal makes sense and your existing space works well,” Ewald says. “You want that competitive environment and your broker to create that competitive environment so you’re in a win-win position to negotiate with all parties and to negotiate a better economic real estate transaction.”Consider more than just costs
Before you sign next to the X, take into consideration more than just the monthly dollar amount you’ll be paying. The general checklist for picking property once emphasized location, employee driving time and amenities. Those concerns remain important, but the current state of the economy has also brought to light the need for efficiency, flexibility and sound deals.
Working with a broker will allow you to receive the best bang for your buck, meaning fair market value, tax breaks, relocation incentives, landlord concessions and operational costs, while making sure it’s a strong deal.
“Outside of the economics of the deal, tenants should take into consideration who the landlord is, what their credit is, what flexibility the tenant has in the event the building goes back to the bank, what rights do they have to offset some of the concessions that the landlord has offered,” Carter says.
The real estate crisis has left landlords hurting. Work with your broker to determine whether your landlord is currently facing or could face financial distress and how that affects the tenant improvements or possible free rent he or she promised.
Nonetheless, you should take the time to work agreements into your lease that protect your rights as a tenant if your landlord forecloses on the property and the lender takes over. Time and savings might also be found in the long run with contraction, addition and termination agreements for flexibility.
Flexibility is key for surviving this economy and that includes your real estate. Your broker will have a space planner who can help you efficiently design the space you’re in or determine which space best suits your company. Companies are saving money by going to open floor plans, narrowing cubical sizes and hoteling, which supports employees working outside the office and sharing desk space.
Whether you’re planning to buy, lease, move or stay, make sure you give yourself ample time at least a year but probably longer depending on size to ensure you’ve settled on the best choice for your company.
“If you start the process early, (your options are) twofold,” Ewald says. “One, to determine efficiencies and really the business plan for the company, but secondly, it’s to engage the market and allow you rself time to leverage and negotiate.”
Most business owners today will claim that safety is an important aspect of their business, but do they really realize how much their company’s safety culture impacts the bottom line? The way companies manage safety is what distinguishes them from their competition. Without the proper safety management, losses can occur at any time due to inadequate training for newly hired employees, unforeseen hazards, lack of internal accountability or, most often, as a result of focusing on getting the job done without making a safe environment a priority.
Regardless of the causes of accidents, the employer is legally and morally responsible for protecting employees from hazards and injuries in the workplace. The only way to protect yourself and your business is to put policies and programs in place to minimize those risks from happening and prevent future problems.
“Any time there are losses in a company, you face possible morale issues among employees and loss of production time to deal with the situation and subsequent investigations into the accident,” says Gerry McEwen, a safety/loss control representative with GMGS Insurance Services. “You also face employee downtime due to the loss and investigation. And if there’s a fatality, you will have to spend time and money on employee counseling. There will be major effects from such losses on the company overall, not just on the employees but to the bottom line.”
Smart Business spoke with McEwen about safety and risk management and the key components of effective programs.
What priorities should employers focus on to reduce safety risk and losses?
- Be responsible for your employees; treat them like they are your greatest assets. Train your new hires and existing employees, making safety one of the forefronts of your business. Let employees know you will provide a safe environment for them to work in.
- Hold all employees accountable. This includes everybody, from upper management all the way down the chain. If you do, everybody will benefit.
- Complete regular inspections to ensure everything is safe and working properly in your company.
- Establish proper engineering procedures and administrative controls.
What are the benefits of having safety and risk management programs in place?
Bottom line, your company will pay lower insurance premiums and reduced workers’ compensation costs. Insurance may pay the immediate costs of losses, but in the long run, a company always pays for its claims. Your employees will also be happier, more productive and morale will improve throughout the company. No matter what type of company you have, the happier the employees, the healthier the bottom line. Safety enforcement also becomes easier as employees see the benefits of maintaining the safety standards.
How do you educate your employees on safety programs and help them understand their importance?
Train your employees, and make sure they understand the benefits of your programs as soon as they are hired at the company. By making safety a precedent you will be able to more effectively train your employees and communicate your safety standards. Communicate the company’s commitment to the employees and to their personal safety. Encourage your employees to participate in evaluating the effectiveness of the training and improving your company’s safety program. If they help to create it, they are more likely to follow it. The ultimate result is for your employees to make your safety programs their safety programs.
How do you enforce and maintain these programs so they continue to reduce losses and risks?
Safety begins at the top and management must be 100 percent on board with the various programs. The programs will only be as effective as you enforce them to be. Once those written programs and procedures are in place, proper enforcement, accountability and documentation will keep your company and employees protected. Make sure you have somebody knowledgeable audit and evaluate the program’s effectiveness. Utilize all the tools available to you including internal and external resources. If your broker is focused on risk management and not just collecting insurance premiums he or she should be providing loss control services and also assisting in coordinating the loss control efforts of your chosen insurance carrier. Regardless, an employer must not merely rely on such outside sources to do the job; this moral and legal obligation cannot be delegated to others it is your job.
A key aspect in an effective safety program includes reviewing the supervisor’s inspections and employee discipline and accident investigation. Are investigations done procedurally to list excuses without finding the root causes of the accident? Do investigations produce positive solutions and do they actually implement the corrections? You have to make sure your company identifies the desired goals and objectives in the programs.
How do you deal with a loss or risk if it does happen?
Take immediate care of your employees at the time of the accident, especially if they need emergency attention. When you assure the injured employee and his or her family that they will be taken care of, you can avoid many unnecessary legal costs in the future. It is paramount to determine the root cause of an accident and not just put a Band-Aid on it. Once you determine the cause, communicate this to all your employees. Every accident can be converted into a safety lesson and this will minimize future accidents while further protecting the company’s bottom line.
Gerry McEwen is the safety/loss control representative at GMGS Insurance Services. Reach her at firstname.lastname@example.org or (949) 559-3372.
I heard the sound of the bone snapping before I felt the pain. It was the end of a grueling workout and my karate instructor had challenged us to finish by attempting a difficult technique. I knew I was too fatigued to perform well, but when the younger students eagerly responded, I foolishly followed my pride.
As I jumped into the air to perform a series of kicks, I failed to get enough height and landed with my leg beneath me, breaking the bone in three separate places. Seconds later, I was lying on the floor screaming in pain. It was a moment I will never forget.
Months later, I was in the doctor’s office looking at a new X-ray of my leg and comparing it to one from the day of the accident. All three breaks had healed, but their location was still clear because, in the place where each break had been, the bone was denser and showed darker on the film.
As the doctor began to remove my cast, I asked him the question that had been on my mind for weeks, “Will my leg ever be as strong as it was before?”
He stopped and looked directly into my eyes. “Don’t you know what happens when a break heals?” he said, smiling. “The bone heals stronger in each place where it was broken. One day, this will be your strongest leg.”
Are you feeling the pain today of a relationship that is broken or of trust you once had with your company or your boss that has fractured under the pressure of challenging times?
If so, then know this: The point of your greatest pain can become the point of your greatest strength. You must only follow the body’s example heal stronger.Heal stronger by learning about yourself
Today, I can easily see how I broke my leg. But seeing the factors that led to a break in a relationship is not always so easy.
I once lost a long-term friendship whose final moment was a single heart-wrenching incident. While I initially thought that this incident was the cause of the break, I now see that it was simply the culmination of differences that had been growing for some time differences that neither of us addressed and that ultimately became too great to resolve.
If you’ve recently broken with a company or received a step back in your title or income, look back to see what the real cause may have been. You may find that the signs were there long before the final moment, whether you were less and less engaged with the work you were doing, becoming increasingly frustrated with your co-workers or simply bored in a position that you had outgrown.
Whatever the cause of the final break, you could likely have created a different outcome if you had addressed the early warning signs more quickly. You can heal stronger by using this experience to learn about yourself and deciding how you will handle similar situations in the future, before they reach the breaking point.Heal stronger by changing your thinking
Weeks after my leg was completely healed, I was still unwilling to train to my full capacity. My body was ready, but my mind wasn’t. Each time I would prepare to use my leg in a challenging way, I would hold back, afraid that it would break again.
One day my teacher called me aside and said, “You can only do what your mind believes. Believe first, then do.”
It was advice that set me free to move forward.
In the same way, it’s tempting to hold on to the emotions surrounding the loss of a job or a change in position, replaying them constantly in your mind. As long as your keep your thoughts focused on the break, you will never completely heal.
Instead, begin to focus on what you’ve learned, on the talents and experience that you possess, and on the successful future that is still ahead of you. The more you focus your mind on these thoughts, the more you will believe them, and as my teacher said, the more you will be able to do.
Not long ago, someone asked which leg I had originally broken. When I had to pause to remember, I knew my healing was complete.
No matter how painful your break has been, you can heal stronger. And the strength you gain can be the key to a new level of performance and success.
Jim Huling is an executive consultant, a national keynote speaker and a professional coach. His leadership experience spans more than 30 years, including a decade as CEO of a company recognized four times as one of the “25 Best Companies to Work For in America.” Huling is also the author of “Choose Your Life! a powerful proven method for creating the life you want.” He can be reached at email@example.com.
This economy probably has your company facing heightened risks risks that you might not be prepared for and that could ultimately cripple your business.
The global economy is the No. 1 risk businesses say they face today, according to the Aon 2009 Global Risk Management Survey. But the survey points out that less than 66 percent of respondents have formally reviewed their major risks or have plans in place to deal with them, including the economic downturn.
Now is a crucial time to have a detailed risk management program in place. After all, budgets are tight, you’re looking for savings and managing risk can directly influence your bottom line.
“If you look at a typical firm, cost of risk might be anywhere from 2 to 5 percent of their gross revenue; in many cases, that’s going to be their second or third largest expense after rent and employees,” says Jeffrey Cavignac, president and founder, Cavignac & Associates. “So if you can reduce that, you can substantially drive dollars to your bottom line.”
Hiring an in-house executive to focus on risk may financially be out of the question. But a good insurance broker can help you put the puzzle pieces in place, starting with the questions that will lead to true solutions.Identify potential exposure
Like anything in business, a true commitment to risk management starts with the company’s leadership. Set aside time for your organization’s key players to sit and outline the different risks you might face, such as financial, property and casualty, and legal.
There are a number of assessments you can do such as risk mapping or enterprise risk management depending on the amount of detail and commitment you want your program to include. Regardless of what direction you are going, you should include your insurance broker in the conversation. Odds are his or her experience, benchmarking data and outside eye will lead to valuable questions. A good broker has dedicated risk management and claims services and will go through a checklist that will bring your risks to light.
“The broker should have a systematic questionnaire, and it’s time-consuming, but it needs to be done,” Cavignac says. “You’re going to look at any number of things from business plans to financial statements to leases to contracts. You’re going to want to walk the facility. You’re going to want to evaluate the equipment. But if it’s done right, it sets the groundwork for an effective risk management program.”
Once your risks have been identified, your broker can help you develop a strategy to quantify your risks and determine whether you should mitigate or transfer the risk.
The process is fairly systematic, but it’s also continuous. A true risk management plan involves constant monitoring. It’s worth the effort to work with your broker to match a timeline of monthly musts with your plan. Especially in volatile times like today, your company could face different risks than it did six months ago.
“If their brokers completed a full risk-management audit and they stay current with their business operations as well as their industry, probably an annual review for compliance is probably enough,” says Bill Litjen, risk management division president, G.S. Levine Insurance Services Inc. “But I think that review ought to be done probably six months before their insurance program renews because that midterm review will allow changes to be made to the insurance program if any are necessary.”Review risks
Your risk analysis is a great guideline for your specific needs, but there are a few areas of coverage the economy has made more relevant. And today’s evolving risks can be enhanced by geography and industry.
“Any number of factors will dictate how the company needs to apply resources to mitigate the risk,” Litjen says. “This economy is making it particularly challenging for the strategic and operational side of things.”
Business interruption and trade credit insurance are two areas to review. If a client can’t pay or your operations are halted, how will those scenarios affect your balance sheet if you’re already strapped for cash?
Insurance executives are warning that desperate times produce desperate people. If you’ve decreased your work force or plan to, keep in mind workers’ compensation and employee discrimination claims tend to rise in a down economy, as do employee crime and cyber theft. Now might be a good time to evaluate directors and officers coverage, employment practices liability insurance, crime insurance, cyber insurance and workers’ compensation coverage.
“I think more businesses today need to focus on protecting how they manage their business,” Litjen says. “In economic downturns, lawsuits are more prevalent.”Find cost-saving solutions
Insurance is one line item that hasn’t been immune to budget cuts. But before you start scaling back coverage, keep this in mind: We’re still in a soft commercial insurance market meaning insurance is a cheap form of risk capital.
A 2009 benchmark survey by the Risk and Insurance Management Society Inc. shows a lower average in premiums contributed to a 9.4 percent drop in the average total cost of risk per $1,000 of revenue.
If you’re worried about the size of your insurance allotment, call your broker now, review your contracts and review your risks. You don’t have to wait until your renewal in order to find savings or renegotiate your contract. Just remember, before you can responsibly lower costs, you need the details of what you are and aren’t covered under.
“In this economy today, you have to look at expenses as a return on investment,” Litjen says. “Those expenses that don’t have a positive return that you can avoid I think are being cut. Everybody is looking to sharpen their pencil that way, but I think if you look at your expenses in terms of return on investment, it makes it easier to decide what you need and what you don’t.”
Immediate savings can be found by passing risk to others, such as tenants or vendors. You also can play around with increasing deductibles to lower premiums or scaling back nonmandatory insurance. If the latter two are options, first weigh whether you can financially assume the risk or if the cost of managing the risk is cheaper.
One of the only ways to decrease the costs you can control is by reviewing your claims. You should have regular claims review meetings with your broker to see where prevention methods can be put into place. Your insurance carrier can help with loss control, such as safety training. Some brokers say clients recently have seen cost savings of 20 percent.
Part of the answer is building a long-term relationship with your broker and even carrier. Share with them details of your operations. Invite them to tour your facility. The more your broker understands your business, the better he or she will be able to provide holistic advice. And a lasting relationship with an insurance carrier can mean more flexibility and negotiation.
“If you establish a long-term relationship with a broker … and, equally as important, if you establish a long-term relationship with an insurance company, then if you have a bad year or a couple bad years, they’re more likely to stick with you than if you jump insurance companies every year,” Cavignac says. “Insurance companies value loyalty, and they price for it.”
If you stop for a moment to think about all of the risks your business is potentially exposed to, the list can be mind-boggling. A customer could not pay you for a large order. Your building could burn down. An employee could be involved in an accident resulting in a lawsuit. Your financial data could be stolen. The list goes on and on.
Because most CEOs prefer to focus on the positives and the growth that goes with it, many areas of risk are often overlooked or ignored. Industry experts will tell you that you need to be reviewing your risk exposure in all areas at least once a year. This should involve a comprehensive look at your entire business and involve all of your top people as well as your insurance agent or some other outside expert who can help guide you through the process.
As CEO, you need to not only ask the right questions to protect the business and those who work for you, you also need to follow up everything in writing to make sure there is a paper trail in the event that something goes wrong.
There are companies out there that market themselves as risk management specialists. Most are reputable and qualified, but some are nothing more than a marketing slogan. Odds are, you probably don’t have a risk management expert in-house. If your agent or broker isn’t interested in helping you with your annual risk review or doesn’t have anything to contribute that might be a sign the person is in over his or her head and you may need to look for a firm with expertise that better matches your needs.
As companies grow, it’s easy to outgrow your experts. Your needs as a midmarket company may be completely different than what you needed as a small company, and the experts who were so vital in the early days of the company may no longer have the expertise you need to go to the next level. It can be hard to make these changes, because a lot of times these experts are also your friends or people you have had a long-standing relationship with. But as CEO, you need to do what’s best for your company. If the friend has the experience and expertise, then great. But if not, you owe it to yourself and your company to find someone who can help you manage the risks that your growing business faces.
Once you find someone, make sure everything you discuss actually makes it into your policy. Have the person show you where in the policy each item is and make sure it reflects a coverage level that you are comfortable with. You should also expect comparisons of what coverage other companies that are similar to yours have so you can see how your package stacks up with the competition. Ask for the pros and cons of getting coverage for each area of risk you face.
There are many areas that you could handle on your own and won’t need to buy coverage. But others will pose so much financial risk that it’s not worth gambling your business just to save a few dollars in the short term.
When all is said and done, send your risk management firm a letter explaining that you are relying on its expertise to guide you through these hazards. This should make it clear that the firm shouldn’t assume you know what you are doing and that you will need its guidance. If something goes wrong, you will have it in writing that the onus was on the firm to provide the proper coverage.
In this economy, there are a lot of things that can go wrong and we’d all like to not think about them. But the CEO’s job is to think through the “what ifs” and make sure the business is protected against all of the risks that are out there.
As senior vice president and group manager for Comerica Bank’s middle market banking in San Diego County, Edmund Ozorio oversees a team of bankers working with privately held companies with revenues of $10 million to $400 million. Ozorio has more than 18 years in financial services and has spent the last 10 with Comerica. Previously, he worked in Paris, France, in economic statistics.
Q. What role does a bank play in assisting its business customers in a down economy?
Because a business bank has the vantage point of seeing companies of all different sizes and across many different industries, your banker can share proven ideas and concrete solutions to help a company address issues, such as delayed customer payments, reductions in staff, building inventories or lower demand. As a company’s cash flow is impacted, it is important to discuss the changed circumstances immediately and keep your banker adequately informed.
Q. What are ways a company can work with its bank to save money and become more efficient in a down economy?
Because cash flow is so important, treasury products are one area every company should be analyzing. To effectively manage your cash position and improve payment processing, ask the basic questions: Are we collecting money as quickly as possible? Are we making it easy for customers to pay us? Are we controlling incoming and outgoing payments? Banks have products that can address each of these, from remote deposit capability and lockbox to electronic bill payments solutions and information reporting.
Q. What information should a business update its bank on?
Banks generally receive fiscal year-end financial statements and interim financial statements on the company, and these are the starting point for discussion. However, the numbers are not as important as the business developments behind the numbers. You should share information on any major changes (positive or negative) in the product line, suppliers, customers and costs. No bank expects to hear only good news in today’s environment. How the bank and the company act together to address challenges is the important aspect of the relationship.
Today’s standard insurance programs often include property, general liability, auto and umbrella insurance policies due to legal or contractual business requirements. While such policies might offer broad coverage, there are many inconspicuous exposures that are often overlooked by today’s insurance brokers. While these gaps in coverage may be subtle, they can often create significant financial risk for your company.
“Just because a coverage is not specifically required by contract does not mean it is not important, especially if the exposure can lead to large financial claims,” says Michael Finn, an account executive with GMGS Insurance Services.
Smart Business spoke with Finn about the problems you face by not including these coverages in an insurance program, and how to identify and close these gaps in coverage.
What problems can arise if you do not include these coverages in your insurance program?
Bottom line — gaps in coverage will create uncovered losses. Many business owners find out about these gaps in coverage because they incorrectly believe standard insurance policies cover all loss scenarios. A company that experiences one of these uncovered claims learns a valuable and often expensive lesson. The question is, can your business really afford to learn one of these lessons?
By reviewing and understanding these non-standard coverages, a company can better identify its true exposures and develop potential solutions to address such exposures. The following coverages can often be added to your present insurance program for a nominal premium or potentially for no cost at all.
- Wage & hour defense coverage can be added to most employment practices liability (EPLI) policies. Wage & hour covers the defense costs for employee lawsuits related to the Fair Labor Standards Act (FLSA). Common claims include employee lawsuits alleging the lack of mandatory breaks/lunches or improper payment of overtime benefits. There should be no extra cost to add this coverage to your present EPLI policy.
- Employee benefits liability covers an employer when errors or omissions have been made in the administration of the company’s employee benefits program. Coverage can be included for little to no cost. Common claims include failing to properly advise employees of the company’s benefits program or improperly excluding an employee or dependent from the health coverage.
- Cyber liability fills the gap in coverage created by general liability policies excluding all Internet related business activity. Cyber liability provides coverage for a company’s Web site, Internet media/ads, and other Web-related content. Common claims include libel or trademark and copyright violation for improper display of pictures, logos or products on a company’s Web site. Coverage is generally added to an existing general liability policy via endorsement for no charge.
- Privacy liability coverage is needed for companies that receive or store customers’ personal information. The most common claim scenario is when credit card or social security information is received by a business and then inadvertently stolen or publicized. Companies are expected to properly protect this private information.
- Crime/employee dishonesty insurance provides coverage for employee theft of money, securities and business property. Smaller limits of $25,000 to $50,000 can be added to property insurance policies for no additional premium. A separate policy should be placed for businesses requiring higher limits and broader coverage.
- Fiduciary liability covers those responsible parties, including company owners, for administering 401(k)s and other employee benefit plans. Fiduciaries can be held personally liable for 401(k) plan losses incurred as a result of their alleged mismanagement, error, omission, or breach of fiduciary duties. Such coverage can be added to a D&O/EPLI policy for a minimal premium.
- Employed lawyers professional liability covers a company’s exposure when an attorney works as in-house general counsel and is not part of an outside law firm. Both general liability and directors & officers liability policies exclude any professional liability arising from an attorney employed at a company. A separate policy should be placed to correctly cover this exposure.
- Hired & non-owned auto liability protects a company for its liability arising from employees driving personal or rented vehicles for work purposes. Common claims occur when an employee uses his or her personal car to run a work errand and is involved in a serious auto accident. This coverage can be endorsed on to the commercial auto policy for little or no additional premium.
How can you make sure these inconspicuous exposures are properly covered in your policy?
The key to protecting a company’s assets is working closely with a knowledgeable and technical insurance broker. A professional insurance broker should function more as a risk manager than as a salesperson. It is your broker’s responsibility to have regular meetings with you and determine which of these exposures exist in your business. If these exposures are not properly insured, your company may unknowingly be ‘self-insuring’ these risks.
Do you need to include all these overlooked exposures in your policy?
The need for any insurance coverage depends on a company’s individual operations and exposures. Every business is unique and certainly not all of the above exposures pertain to every company. In this turbulent economy, it is important to properly protect your company’s assets by having the appropriate coverages in place, not just the standard contractually required coverages.
Michael Finn is an account executive with GMGS Insurance Services. Reach him at (949) 559-3376 or firstname.lastname@example.org.
In these strange economic times, you need to talk to your bank as much as the bank needs to talk to you.
Instability in the banking world is what led to the economic downturn, and while things have stabilized, you still need to be aware of your bank’s status. Is it one of the banks that was mostly unaffected by the crisis, or did it have to take government money to survive?
You need to know because you don’t want to be taken by surprise.
In the old days, it was the banks asking all the questions. They wanted to know about you and your business to determine whether you were capable of paying back the money you wanted them to lend to you. Now, they are asking those questions and more about every customer, because they can’t afford any more bad loans. At the same time, you can’t afford to be left high and dry by a bank that suddenly decides to pull your line of credit because someone there decided he or she didn’t like the industry you are in. It’s important to ask as many questions about your bank as the bank asks about you.
This is where trust comes in. Both parties need information to make the relationship work. You need to be honest with the bank so it is not taken by surprise, but the bank also needs to be honest with you about what it can do for you now and in the future.
Ask yourself how much your banker really knows about your business. If he or she has never come out to see you and ask about your operations, you have to wonder how much he or she really cares about the relationship. If your banker isn’t going to try to understand your business, then how will you convince him or her to loan you money when needed? What will the bank base its decisions on if it doesn’t truly understand your company?
If your banker has invested some time in you, then you should invest some time in him or her, as well. Review the products and services you use with the bank and see if there are better options that might be available. Are you paying for services you aren’t really using? Are there ways the bank can help you improve your cash flow?
A good banker wants to be an adviser. If you aren’t getting any advice, you may need another bank.
In these economic conditions, it’s also a good idea to have a backup plan. What if your bank called tomorrow and said that it had to eliminate your line of credit? Could you survive?
Develop secondary relationships, both with other decision-makers in your current bank and with decision-makers in other banks. This way, if your current banker leaves or is downsized, there is already someone in place either there or somewhere else who is familiar with your business.
In today’s world, you can’t afford to be surprised by anything, let alone a sudden decision by your bank that’s driven by things outside of your control.
Work the relationship you have with your banker, but make sure you are always aware of what’s going on with your bank, just like it will be aware of what’s going on with you.
D. Locke Epsten is the director of corporate education at UC San Diego Extension. Epsten creates customized training programs for corporate clients in the areas of leadership, management, systems engineering and project management. Prior to joining the university in 1993, she served in senior marketing management positions in the insurance and financial services industry.
Q. Are there resources companies can look for to more efficiently train employees?
Rather than going out and creating a training program where you’re starting from scratch, it’s much more cost-effective to go to a university, take a look at their curriculum, see what they have and then partnering with them to customize it for your particular business. Why build from scratch when there’s a lot of good stuff that is already out there? And you can do a lot of that customization through things like homework assignments so that the projects they’re working on for class are the projects they’re working on at work.
Q. How can a business form a successful training regimen?
Link it to a performance management system because everybody pays attention to their performance review. I think by adding training as a goal when the person is having their individual performance review, you can both be looking at the big goals for the corporation or for the department or for the division they’re in. If you have training goals that are among the goals that are laid out for the year, it gives people sort of the incentive to think about how am I going to make myself better. The other thing, too, is instead of putting it all on the shoulders of the company doing the training, it puts a little more back on the shoulders of the individual for his own professional growth and development.
Q. Is there more buy-in that way?
I think whenever an employee realizes that a company is encouraging [him] to develop his career and think about a career track as opposed to, ‘Oh, this is just a job,’ there will be more buy-in. Most companies these days are looking at career pathing.
If you look through a list of top companies and compare it to a list of high-growth companies, you will usually find one thing in common: a commitment to training and development.
These companies see the way to continued growth through a continual development of their employees. Some focus on the basics of the job, some focus on leadership development, and many organizations do both. The equation is simple: Equip employees with the right skills and knowledge, and they’ll whip the competition. And the level of commitment of some of these companies is staggering.
For example, PricewaterhouseCoopers invested more than $10 million in developing 25 global programs dealing with issues of diversity and inclusion. Wyeth Pharmaceuticals sent 1,800 salespeople through an eight-level “career ladder” that recognizes performance and elective credits from approved coursework. Vanguard invests 34 hours of instruction and 17 hours of on-the-job training for its top performers, touching on topics like the company’s leadership values, coaching others and transition strategies. More than 50 percent of those who go through Vanguard’s training have been promoted to a supervisory role.
How much you spend isn’t as important as what you are committed to accomplishing. Regardless of whether you are a $10 million company or a $2 billion company, the same principles apply.
While many CEOs can see the potential of training, they hesitate because of the unknown. What will the return on investment be? How do you measure how much more effective your employees will be? Those are tough questions to answer, especially in an economy where every penny counts.
But if you want to be one of the best companies, you are going to have to take the long-term view and make the commitment. If you work closely with your managers and staff to make sure you are training on the right topics, the benefit will come. You will give employees the skill sets they need to succeed, they will take ownership of projects, and they are more likely to build a long-term commitment with you.
Not every training program has to cost millions. If you work with your local university and community college, you’ll find there are a lot of affordable programs that can meet your needs. Many offer online modules that can be completed at any time, minimizing disruptions among employees. Others offer pre-class and post-class assessments so you can see how much employees learned in the session.
No matter what type of training you choose to pursue, make sure you are completely committed to it. Don’t do it just so you can add a training overview to your company description on your Web site or as a means of enticing job seekers. If you are going to invest in people, then you need to believe in it to make the program work.
Once you are committed, make sure you maximize your return. Survey employees to find out what they are interested in learning about and what they thought of completed training sessions. That information can help you create some initial plans or refine the ones you already have. Training is most effective when all parties involved — employer, trainer and employees — are all committed to the end goals.
In a time when many companies are cutting back, a lot of midsized companies are eliminating training and development programs as an easy way to boost the bottom line. But if you are cutting back, some of your competitors are not. When the economy turns around, they will have a better-trained and more committed work force to take advantage of new opportunities.
The question to ask yourself isn’t, “Should I cut training?” The question should be, “Can I afford not to invest in my people?”