Leaders often talk about how the traits of accountability and transparency helped make them who they are, but to retired Navy Adm. Mike Mullen, who served as the chairman of the Joint Chiefs of Staff for four years under President George W. Bush and President Barack Obama, leadership is quite simply how you listen, learn and lead.
It’s not just a coincidence that communication is as important in the war zone as it is in an organization — and that’s where Mullen emphasizes listening to what his team members have on their minds.
Smart Business talked with Mullen about the challenges of being in command:
Q. What do you see as the most important trait that any leader must possess?
A. Integrity. Be true to yourself, and obviously true to your values. The value of integrity intrinsically has been a driver for me since I was a midshipman at the U.S. Naval Academy. It has served me exceptionally well.
Integrity encompasses being honest, truthful and consistent — both publicly and privately in leadership positions — and representing that in every situation. It is most evident in the toughest decisions you have to make.
Q. And how can you ensure integrity is present in leadership?
A. What I loved about command was the responsibility and authority that came with it. But more than anything else, the other piece was accountability — accountable leadership. That is not just having someone hold you accountable, but having enough strength yourself as a leader to hold yourself accountable.
I just found that even with those decisions that can be very unpopular, if you are true to that value of integrity, even if it may not seem to some to be the best decision, it [integrity] holds you in the best stead as a leader over the long term. And because of that, it becomes incredibly supportive of those very, very tough decisions.
Q. So what can help a leader make those tough decisions more effectively?
A. As a more senior leader, I learned to keep a diversity of views around me. The more senior I got, the more diverse the people, the recommendations and the discussions had to be in order for me to make the right decision.
I had people around me who were willing to say, ‘Hey, this is when you got it wrong,’ as opposed to the opposite, which is isolation, where nobody will tell the emperor [he] doesn’t have any clothes on.
Q. You’ve mentioned the importance of listening to others in order to help you become a better leader. How did you do that?
A. Everywhere I went, whether we had a town hall meeting or we could call an all-hands meeting, I would take questions from the audience. So, for example, when a young enlisted man would give me a question of which I didn’t know the answer, I said, “I don’t know the answer, but give me your email address. I will go research it and get back to you.”
I did that. I went back and looked at whatever their concern was. And some of those concerns generated significant changes in the military, or in the particular service they were in. For me, as chairman, that was a vital part of trying to understand what I was asking them to do, and then taking that feedback and trying to fix the problem that they raised — if it made sense to do it.
A good leader can make such a difference, and create something out of nothing, whereas a bad leader is unable to do that. The ingredient that makes a difference is leadership. ●
Retired Navy Adm. Mike Mullen served more than 43 years in the Navy, having served as the chairman of the Joint Chiefs of Staff from 2007 to 2011, and as chief of naval operations from 2005 to 2007. He will be the keynote speaker at the Dec. 5 American Red Cross Hero Awards. Learn more about the Hero Awards at www.clevelandheroes.com.
Consider this business scenario: You’ve landed a big account for your company by converting a highly prized prospect into a valuable client. The new client has hired you to handle a specific scope of work and is counting on your team’s ability to deliver work that goes above and beyond.
While nothing is more important than delivering great customer service to satisfy the client, you may not realize that you’re probably overlooking unrealized opportunities to forge a stronger relationship with your customer.
In today’s business landscape, most large companies offer an array of products and services. More often than not, however, your clients use you for a specific service or skill set. And unfortunately, in this scenario, most companies focus solely on the task at hand — delivering what they’ve been contracted to deliver — failing to take ample time to think about the bond they’re creating with the client and what could be next.
In more simple terms, it is one thing to provide service that keeps a customer; it is another to keep that customer and expand the relationship to become a trusted partner.
Provide value in a deliberate way
The good news is that this is an easy fix. Establish a content marketing program that allows you to distribute thought leadership to your clients.
A content marketing program will help you provide value that other service providers may not, and when clients see you as an informational resource and partner, it will be easier to expand the relationship.
Take this example into consideration: You are an insurance provider and your main product is life insurance, therefore most of the communication you have with your clients surrounds that topic.
With a comprehensive content marketing program in place, however, you can educate your clients on the recent trends in the insurance industry and how that affects the individual. At the same time, you can give them an overview of your company’s wellness program and let them know that if they joined, they could reduce their monthly premiums.
As you can see, you’re not just providing your client with the original service, you’re also providing them with both your thought leadership — aka value — and additional offerings.
Personal connections payoff
Aside from providing value to the client with the content you distribute, a strong content marketing program allows you to showcase your brand’s personality. Clients will be able to connect with your brand on a more personal level.
Providing continually updated content through the right channels to the right clients enhances your day-to-day communications. Clients start seeing you as thought leaders and partners instead of just service providers.
It will help you expand relationships and, as a result, generate new business through more products and services.
Show them more than just what they see on the surface — show them how active you are in the community, or how much fun you had during a recent company outing. If may sound trivial, but your clients do similar things, and seeing you connect with the community and/or employees will help forge a more personal connection. You never know; you and your client may support the same charity, organization or team.
Open communication also will help strengthen relationships to the point where you can capture a premium price and eliminate price-jumping clients. Clients will pay more for a valuable relationship than simply look to get the lowest price elsewhere. ●
David Fazekas is vice president of marketing services for SBN Interactive. Reach him at firstname.lastname@example.org or (440) 250-7056.
You would think someone like Douglas Merrill would be a heavy multitasker, with multiple devices in hand, fielding several conversations — both real and virtual — simultaneously.
But you would be wrong.
Merrill, who was the CIO at Google until 2008, doesn’t like to multitask. He says that when you do it, you aren’t using your brain’s full capacity and aren’t as effective. He recommends focusing on one thing at a time.
Billionaire Mark Cuban has his own time management strategy. Cuban, owner of the NBA’s Dallas Mavericks, says you should completely avoid meetings unless you are closing a deal. Otherwise, he says, they are a waste of time.
Both of these proven leaders have learned that how you manage your time is paramount to your effectiveness.
As a CEO, you are swamped every day with calls and emails from people wanting a piece of your time. Some are internal, some are charity requests, some are from friends or family members and others are from service providers.
To help wade through this sea of information, it’s important to have a system in place to help you free up time to think about your business and the things that matter most in life. These open times are what author Richard Swenson refers to as “margin.” They are the spaces between ourselves and our limits that are reserved for emergencies.
But for many business leaders, there are no spaces left.
The way out of this trap is to set clear goals and values for yourself and your organization. Once you do that, you will have a filter through which to evaluate everything. Everything will have an immediate yes or no answer, eliminating the “let me think about it” category completely.
The key is to establish what your goals are first and then prioritize what is important. With your priorities straight, you will find more time to put toward important things on your goals list, but don’t forget to leave time on your daily schedule. There is no way to foresee all emergencies, so by leaving yourself some margin, when something unexpected happens, you already have time built in to deal with it.
Once you have margin built into your life, you have to have the discipline to stick to it. There will always be the temptation to take every meeting or answer every email. But if you use your goals and priorities as a filter, those requests are easily either accepted or declined based on where they fall on your priority list.
If you want a life where you can experience more peace and joy and less anxiety, start looking at your priorities and establish some margin in your daily schedule. ●
Deny, deny, deny; fall, tuck and roll; or put your head in the sand?
The quick answer to this headline is none of the above. A leader, by definition, must do exactly that — lead, which means being in front of a variety of audiences, including employees, investors and customers. Not everyone is going to be a gung-ho supporter. Sooner or later you’ll encounter a naysayer who either has a point to prove or is on a mission to make you and your company look bad.
Many of these verbal confrontations come out of nowhere and when least expected. As the representative of your organization, it is your responsibility to manage these situations and recognize that sometimes a “win” can simply minimize the damage.
When under siege, it’s human instinct to fight, flee or freeze. Typically these behavioral responses aren’t particularly productive in a war of words. Engaging in verbal fisticuffs could simply escalate the encounter, giving more credence to the matter than deserved.
If you flee by ignoring the negative assertions, you’ll immediately be presumed guilty as charged. It’s hard to make your side of the story known if you put your head in the sand.
By freezing, you’ll appear intellectually impotent. Worse yet, pooh-poohing a question will only fuel the aggressor’s determination to disrupt the proceedings. You could use a SWAT-type police and military technique to elude a confronter by falling, tucking and rolling to safety, but that usually only works on the silver screen.
Perhaps the best method to manage unwelcome adversaries is to be prepared prior to taking center stage. This applies to live audiences or a virtual gathering when you’re speaking to multiple participants, which is common practice for public company CEOs during quarterly analyst conference calls.
Most gatherings of this nature include a Q&A segment where the tables are turned on the speaker who must be prepared to respond to inquiries both positive and negative.
Before any such meeting, it is critical to contemplate and rehearse how you would respond to thorny or adverse statements or questions.
A good practice is to put the possible questions in writing and then craft your responses, hoping, of course, that they won’t be needed. This is no different from what the President of the United States or the head of any city council does prior to a press conference or presentation. The advantage of this exercise is that it tends to sharpen your thinking and causes you to explore issues from the other perspective.
In some cases you’ll find yourself in an awkward or difficult situation where there is no suitable yes or no answer, or when the subject of the interrogatory is so specific it is applicable to only a very few.
The one-off question is easiest to handle by stating that you or your representative will answer the question following the session rather than squander the remaining time on something that does not interest or affect the majority.
The more difficult question is one that will take further investigation and deliberation, in which case the best course of action is to say exactly that. Answer by asserting that rather than giving a less-than-thoughtful response to a question that deserves more research, you or your vicar will get back with the appropriate response in short order. This helps to protect you from shooting from the hip only to later regret something that can come back to haunt you.
Effective speakers and leaders have learned that the best way to counter antagonism is through diplomacy. It’s much more difficult for the antagonist to continue to fight with a polite, unwilling opponent.
Finally, when being challenged, never personalize your response against your questioner; always control your temper; and don’t linger on a negative. Keep the proceedings moving forward and at the conclusion keep your promise to follow up with an answer. This will build your credibility and allow you to do what you do best, lead. ●
Michael Feuer co-founded OfficeMax in 1988, starting with one store and $20,000 of his own money. During a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling this retail giant for almost $1.5 billion in December 2003. In 2010, Feuer launched another retail concept, Max-Wellness, a first of its kind chain featuring more than 7,000 products for head-to-toe care. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. “The Benevolent Dictator,” a book by Feuer that chronicles his step-by-step strategy to build business and create wealth, published by John Wiley & Sons, is now available. Reach him with comments at email@example.com.
In Patrick Lencioni’s latest book “The Advantage: Why Organizational Health Trumps Everything Else in Business,” he points out that the greatest competitive advantage you can have is to be a healthy organization. He’s right.
So what exactly does that look like? Well, let’s take a closer look at the other side of the coin — an unhealthy organization. Here are three strong indicators:
- A lack of trust leading to poor teamwork and alignment.
- A lack of clarity about mission, vision and values.
- A fear of conflict. People are not allowed to say what they really think.
With these symptoms, you can predict a lack of accountability on team goals, resulting in sloppy execution, inadequate results and ultimately, a poor reputation. As a smart business leader, however, you want the best results and a great place to work (they typically go together), so let’s consider the four fundamentals to achieve both goals.
Trust is the hallmark of a cohesive team. Without it, people have doubts, fears and uncertainty, which makes alignment and unity impossible.
Remember that we’re not talking about baseline trust such as, “Do I trust you not to steal my wallet?” Trust in this context means that I understand and accept you because you’re willing to be vulnerable and genuine. There are no hidden agendas.
Clarify and over-communicate
Leading a business means facing many crucial issues and decisions every day. A good leader has the ability to synthesize large amounts of information into something simple. Too often, leaders assume that their staff see and understand what they do, and this causes problems with execution.
Imagine a quarterback having a complex play in mind, yet he only calls a short version of it in the huddle. If the players don’t have the same mental picture as the quarterback, mistakes will likely happen.
It’s the same in business. Leaders have to continually clarify and over-communicate the message down to the bottom of the organization to make sure the team understands what plays are being called.
Create a safe environment and encourage debate
In healthy organizations, there’s an absence of fear, and courage is rewarded. Do your people have to walk on eggshells, or do they feel safe with you? Can they disagree with you and have a fair hearing, or do your reactions equate disagreement with disloyalty?
Healthy leaders invite creative conflict prior to making key decisions to get team buy-in and to make sure that other reasonable ideas are evaluated. They’re more interested in being effective than being “right.”
One of the greatest desires of all people is to be understood, so show courage by listening and learning from your people. Your courage, vulnerability and authenticity will be seen as strengths.
Leading isn’t easy. Every day you face tough issues, and your people are watching to see if you will walk the talk of your stated values. It takes all your courage and the support of your team and confidants to consistently lead with honor.
Lean into the pain of your fears to do what you know is right, and you will send a message of healthy courage throughout your organization. Remember that positive emotions are contagious and powerful, and leaders go first. ●
As president of Leadership Freedom® LLC, a leadership and team development consulting company, Lee Ellis consults with Fortune 500 senior executives in the areas of hiring, teambuilding, leadership and human performance development, and succession planning. His latest book about his Vietnam prisoner of war experience is entitled “Leading with Honor: Leadership Lessons from the Hanoi Hilton.” For more information, visit www.leadingwithhonor.com.
My 7-year-old son Cole recently gave me a Rainbow Loom bracelet, which is made of linked rubber bands. It is today’s school-age children’s craze, and Novi, Michigan-based Choon’s Design LLC is churning out the kits at a record pace.
With more than 1 million units sold in the last 24 months, Rainbow Loom is the brainchild of Choon Ng, a former Nissan crash safety engineer who invented it while working on a craft project for his daughters.
And Rainbow Loom, it turns out, isn’t its original name. When it was created, it was called Twistz Bandz.
Timing is everything, and Twistz Bandz may have sounded a bit too much like Silly Bandz — the last “wrist” craze that swept the nation. Between November 2008 and early 2011, every school-age child in sight was wearing layer upon layer of Silly Bandz on their wrists. It was as hot a product as anything since Beanie Babies.
Twistz Bandz’s arrival, it seems, happened just as Silly Bandz ran into what every hot new product eventually faces: competition. Look-a-likes with similar-sounding names began flooding the market. They were cheaper, and you could buy them more readily at more retail locations. The core brand quickly diluted. So Ng did what any smart businessperson would: He changed the dynamics of the situation.
Thus, Rainbow Loom was born.
Enter social media
Within a few months, the product — which allows its young owners to custom-create bracelets — was gaining attention. Much of this was due to a full-tilt social media blitz, including videos on YouTube and an engaging Facebook page, where users could share their designs.
More recently, Ng has become vigilant in protecting his patent and U.S. trademark — battling all wannabe competitors from launching similar-sounding products and flooding the market to dilute his own brand.
His success — or failure — is yet-to-be determined. But his efforts will prove fruitless if he’s not already looking ahead to the next product. This is the dirty little secret to any hot toy craze and the core dilemma every business leaders faces: How do you remain relevant as consumers’ wants, needs and desires ebb and flow — sometimes as swiftly as the wind changes direction.
Get beyond being a fad
Success in business relies upon building a sustainable operation that will outlast any cyclical “must have” product explosion.
There needs to be the creation of an idea continuum — an innovation factory, if you will. Innovative leaders must review, measure and adapt a company’s products, services and solutions to the changing whims of the marketplace. You need to talk to customers, vendors and prospects. And you need to regularly take the pulse of the market.
If you haven’t taken at least some of the gains from today’s success and invested it into research and development for tomorrow, you’re already losing ground. Today is today, and just like the disclaimers for financial investing warn — past performance does not indicate future results.
In the end, the only thing that matters is this: Is your next big thing built to last? Or, like every other craze that’s every hit the market, will your opportunities to remain relevant long into the future fade away after the competition creeps in and dilutes your market? ●
Dustin S. Klein is publisher and vice president of operations for Smart Business. Reach him at firstname.lastname@example.org or (440) 250-7026.
Saving money on 2013 taxes, health care reform and hiring best practices are among the topics featured in November’s Insights articles
SeibertKeck: How the wealthy can prevent coverage gaps in their personal insurance
Kevin Franczkowski, Client advisor
Accounting & Consulting
SS&G: How wealthy families can centrally manage assets through family offices
Floyd Trouten, Director, Tax
Banking & Finance
FirstMerit Bank: How business owners can profit from expanded, enhanced SBA lending
Tim Dixon, SBA program manager, senior vice president
Brouse McDowell: How to vet a job candidate and reduce legal risk
Karen C. Lefton, Partner, Labor & Employment practice group
Sequent: How dropping health insurance benefits may not save you money
William F. Hutter, CEO
Retirement Planning Services
Tegrit Group: How to prepare for, survive and thrive after a retirement audit
Mike Spickard, CEO, Chief Actuary
Cendrowski Corporate Advisors: How an operational assessment can help an organization identify risk
James P. Martin, CMA, CIA, CFE, Managing director
Novack and Macey: How understanding damages is critical in commercial litigation
Eric N. Macey, Partner
Benefitdecisions: How the DOMA ruling has changed benefit plans
Stephanie Martinez, PHR, Director, HR Services
HealthLink: How to fulfill your Affordable Care Act responsibilities
Mark Haegele, Director, sales and account management
CompManagement: How to get workers' compensation discounts for things you already do
Randy Jones, Senior vice president, TPA Operations
RiskSOURCE Clark-Theders: How to protect your company against cyberthreats
Jayce Stewart, MBA, Commercial Risk Consultant
WTP Advisors: Distributors, software firms, architects, others missing tax savings
Amit Mathur, CPA, Director
Fay Sharpe LLP: Why your U.S. patent won’t help you overseas
John S. Zanghi, Partner
Accounting & Consulting
Skoda Minotti: Moves you can make now to save money on your 2013 tax return
Steve Gross, CPA, Partner
John Carroll University: How to react when you suspect an employee of fraud
Mariah Webinger, Ph.D., Assistant professor of accountancy
Leverity Insurance Group: How to rebuild your business in the event of a catastrophe
Derek M. Hoch, President
CRESCO: How to get the most from your property management services
Eliot Kijewski, SIOR, Senior vice president, CRESCO
Judy L. Simon, CPM, Assistant vice president, Continental Realty
Rea & Associates: How your business can get tax benefits from research activities
Christopher E. Axene, CPA, Principal, Tax Services
Kegler, Brown, Hill & Ritter: How to deal with cybersquatters and other domain name issues
Jeff Nein, Associate
Ohio.net: How to implement cutting-edge VoIP technologies with a dash of caution
Alex Desberg, Sales and marketing director
SeibertKeck: How the wealthy can prevent coverage gaps in their personal insurance
Marc McTeague, President
Crowe Horwath: How to apply accounting rules for related-party transactions
Wayne Williams, Partner
Banking & Finance
First State Bank: How local banks offer better service and drive your hometown economy
Eugene Lovell, President and CEO
Weaver: How forensic accountants and the public sector combat fraud
Trish Fritsche, CPA, CFF, CITP, CGMA, Senior manager, Forensics and Litigation Services
Momentous Insurance Brokerage: How to achieve cost savings by managing workers’ comp claims
Kimaili “Ken” Davis, ARM, Assistant vice president
Los Angeles/Orange County
Woodbury University: How non-profit financial practices can boost for-profit businesses
Kenneth Jones, Vice president for finance and administration, CFO
Los Angeles/Orange County/Northern California
Banking & Finance
California Bank & Trust: How to enhance sales with merchant services
Jan Mitrovich, Manager, Treasury Management, Merchant Services
Ropers Majeski Kohn & Bentley PC: How to weigh the pros and cons of SIRs vs. deductibles
Michael T. Ohira, Partner
Montage Insurance: Unlocking health care reform: A look at the individual mandate
Tobias Kennedy, Executive vice president
Human Resources Outsourcing
TriNet: How the process of attracting and hiring employees has changed
Mary Oslin, Manager, Talent Acquisition
Accounting & Consulting
Moss Adams LLP: How fair value reporting is hitting your company’s books
Bryan Cartwright, Financial services assurance partner
California State University, East Bay: How more market oversight delivers better investment in private equity
Sinan Goktan, Ph.D., Assistant professor of finance, College of Business and Economics
Sensiba San Filippo: How health care reform demands a strategic approach from businesses
Bill Norwalk, Tax partner-in-charge
Wealth Management & Finance
Mosaic Financial Partners: How personality styles affect performance and team synergy
Ricci M. Victorio, CSP, CPCC, ACC, Managing partner
Ropers Majeski Kohn & Bentley PC: How civil cases can be settled with alternative dispute resolution
Brock R. Lyle, Partner
Banking & Finance
Bridge Bank: How to discover resources available to California businesses
Gloria Ferguson, Senior vice president, market manager, Corporate Banking Division
Stradling Yocca Carlson & Rauth: How the JOBS Act makes it easier for companies to raise money
Mark L. Skaist, Shareholder, co-chair, Corporate and Securities
ECBM: Transparency in purchasing benefits, the time has come
Matthew R. Huttlin, Vice president, Employee Benefits Division
Comcast Business: How Ethernet helps businesses realize cloud computing potential
Kevin Conmy, Regional vice president, Business Services
Semanoff Ormsby Greenberg & Torchia: How letters of intent provide a road map for business transactions
Peter J. Smith, Member
Accounting & Consulting
Kreischer Miller: How business owners are paying key employees for performance
Tyler A. Ridgeway, Director, Human Capital Resources
First Commonwealth Bank: Business development in a male dominated energy industry
Megan A. White, Vice President, Regional Manager
SMC Consulting: How design firms add certainty, cost efficiency to office furniture selection
Kelly Colamarino, Interior designer
ChamberChoice: How to create flexible, employee-centric benefits that reduce overhead
Ron Carmassi, Sales executive
UPMC Health Plan: How population health management delivers better, lower cost outcomes
Dr. Marc Manley, M.P.H., Vice president, Population Health Management, UPMC Insurance Services Division
Brown Smith Wallace: How the ACA and the end of Bush-era cuts affect tax strategy
Cathy Goldsticker, CPA, Partner, Tax Services
As a central control position for financial assets, family offices manage investments and trusts by preparing tax returns, handling bill pay and/or overseeing financial controls.
Floyd Trouten, a director of tax at SS&G, says families that use these private companies typically have an excess of $10 million in investable assets. However, no family office is alike because they are very customizable and offer a high level of service.
“A well-run family office minimizes taxes and maximizes cash flow to family members. It maximizes the amount of wealth that can pass from one generation to another. It provides a control point where assets are housed, managed and invested,” he says. “But the biggest thing is you can sleep well at night, knowing things are under control.”
Smart Business spoke with Trouten about how family offices work and why this might make sense for your family.
Why are family offices so different?
Each family has specific needs. Some may already have a third-party investment group that manages the money, so family members don’t care about investment advice if they are getting tax returns prepared. Other family offices include estate and tax consulting to maximize benefits to beneficiaries and minimize potential taxes.
With another type, the family may ask the financial advisers to be trustees. As the trustee of a family trust, the office may do bill pay and investment review. For example, if a granddaughter has an idea for an investment, it could be easier to have her bring it to the third party for review. The family office provides objective advice and lessens hurt feelings.
As another example, if a family member wants to buy into operating companies as a member of the board of directors, under the family office, the financial adviser might be asked: ‘Is this a good company to buy?’
In what areas do families with concentrated wealth typically fall short?
Some potential problems are having:
- No financial controls on what different family members can spend.
- Too much money not invested, and not earning anything.
- Investments so far spread out that you really don’t know what you have.
Another area to watch is bill pay. If a family member has the tendency to give to every charity that sends a request, the family office can provide guidance to the member regarding legitimate charities and charitable goals.
Many family assets may be flow-through entities — partnerships, trusts, LLCs or S corporations, which are taxed on an individual’s return. Family offices can help ensure there’s money for the appropriate tax payments as family members may have filing requirements in multiple states, as well as the U.S. and foreign countries.
What are some other ways families can utilize accountants through a family office?
If a patriarch or matriarch has sold a company for $100 million, for example, and wants to leave money for grandchildren and children, family office advisers can help ensure inheritances are fair and reasonable. It’s important to remember that fair doesn’t necessarily mean equal. Giving more to one child than another can create difficulties, but it may be for good reason, such as health, martial circumstances, etc. Combined legal and financial counsel can help you come to sound decisions.
In addition, you must take asset protection into account. If a beneficiary receives assets outright, he or she could have those threatened in a lawsuit, divorce or bankruptcy. A family office trust, administrated by a family member trustee and a third-party trust protector, safeguards assets from being awarded to another in a legal settlement.
Each family member’s individual needs can be so diverse that it may make sense to have separate trusts for each family member, which could be more easily administered from a central point. This scenario minimizes family disputes and provides individual privacy.
There are $46 trillion in assets housed in family offices today. If your family has complex tax return and financial scenarios, then it’s worth exploring whether you fit into this space. Find out more at the Family Office Association by visiting www.familyofficeassociation.com. ●
Insights Accounting & Consulting is brought to you by SS&G
Small Business Administration (SBA) financing has been around for a long time, but these loans are available to more business owners than ever due to recent program enhancements.
Your banker should be able to take you through the programs and eligibility requirements to see if an SBA loan fits your needs, says Tim Dixon, SBA program manager and senior vice president at FirstMerit Bank. And if you work with a preferred lender who has the authority to make decisions on behalf of the SBA, the SBA lending process can be straightforward.
“We do the heavy lifting for the client and try to make the SBA loan process look very much like any conventional business loan,” Dixon says.
Smart Business spoke with Dixon about SBA lending changes.
What traditionally has been covered by SBA lending?
The core SBA 7(a) lending programs can help when your company:
- Has been in business for a short time.
- Is tight on collateral or is leveraged.
- Has some particular industry risk.
- Cannot meet standard down payments.
- Needs extended amortization to better fit with cash flow.
The two main SBA loan programs are 7(a) and 504, which is done with an area Certified Development Company. The 7(a) loans have a broad range of eligible uses and can serve a variety of purposes — real estate, equipment, working capital, refinancing debt, financing a change in ownership, etc.
The 504 program, which typically has slightly larger loan amounts, focuses on economic development and expansion, and the job retention and creation that come along with it. There are just a handful of eligible purposes, such as real estate purchase and expansion, or purchasing heavy equipment that has a useful life of at least 10 years. And certain types of projects may be eligible for special consideration, including energy efficient projects or projects located in targeted economic development areas.
What SBA program changes are enabling more companies to receive larger loans?
Several years ago, the SBA expanded its role by increasing the size of loans that can be extended. The maximum aggregate exposure of SBA-guaranteed loans for standard SBA programs is $5 million. However, under the 504 loan program, you can go even higher in terms of total project amount. Say you’re buying real estate or doing a significant expansion, your total project could be as high as $12 million when you leverage all your dollars together. The bank could do a first mortgage loan, and the SBA would do a second mortgage financing with a long-term fixed rate, while the borrower puts some equity into the project.
At the same time, the SBA increased the size of businesses that can qualify for lending. What might have been considered a midsize company now qualifies for these ‘small business’ loans.
Another change became effective Oct. 1. The SBA authorized a waiver of the SBA guarantee fee on 7(a) loans of $150,000 or less. The waiver is very broad, just based on the loan’s dollar size. It can be used for any number of purposes, such as working capital, equipment, refinancing, etc. It’s really targeted at benefitting traditional small business owners at those loan amounts — helping grow Main Street. It runs through this fiscal year, or until Sept. 30, 2014.
What has been the impact of these enhancements on lending?
Some of the changes have been in place for a few years, and have really had an impact on increasing the number of loans.
In addition, the SBA has been busy since some of its major program changes, providing continued enhancements. The SBA is always looking at the underlying eligibility requirements to try to provide simplicity for banks and businesses.
Have any SBA loan programs been reduced?
Yes. There was a temporary program that expired Sept. 30, 2012. It allowed banks to use the 504 program to refinance eligible projects and debt. It locked in a good portion of the deal at low 10- or 20-year fixed-rate financing. The banking industry has been lobbying to have that program resurrected again. The program might return later this year or in 2014. ●
All opinions expressed herein are those of the authors/sources and do not necessarily reflect the views of FirstMerit Corporation.
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Even with the proper insurance coverage, recovering from a disaster can be difficult for businesses that have not thoroughly prepared for the rebuilding process. Disaster plans and insurance money may not be enough to save a company that hasn’t tested its ability to address a crisis.
“Yes, there’s insurance to protect against a disaster, but what happens after the catastrophe occurs? It’s great to have a written plan in place, but if you don’t do a trial run or an audit of the plan, how do you know it’s going to work?” says Derek M. Hoch, president of Leverity Insurance Group.
Smart Business spoke with Hoch about the basics of disaster recovery and how insurance supplements the planning process.
What is often overlooked in terms of disaster planning?
Both business owners and key employees can become complacent because there is a plan in writing; they assume it will automatically work. Employees read the plan, understand their role, then over time there is no refresher about what they specifically need to do in that job function if a disaster were to occur.
From an insurance aspect, it’s easy enough to get monetary relief and rebuild if you insure the building structure and business personal property. What often gets overlooked is business interruption, or business income coverage. This is a major component in any businesses risk management program. It represents the economic loss, the potential loss of key employees, ongoing payroll and utility expenses, as well as any extra expenses that you normally wouldn’t have if the disaster didn’t occur. There are a lot of variables that business owners do not think about until after a disaster, and those costs are often overlooked and underinsured.
The problem with business interruption insurance is that it’s a difficult number to determine. There are business income worksheets and calculations that can be made, but it’s not a static number like replacing a building, which has a specific dollar amount.
What is necessary, once the written plan is in place?
Companies will put the plan in writing and explain it to employees, but never conduct a test because they don’t want the disruption to their business for a half or full day. A catastrophic event could occur at any moment. You may need to shut the business down in order to:
- Test the facilities.
- Make sure employees relay the proper information to the correct people or authorities.
- Confirm anything done off-site to back up systems is in place, and you’re not losing valuable information and data that would compromise the sustainability of the operation.
Companies don’t want to disrupt their businesses. What they don’t realize is that one day off to test their plan could potentially save them thousands or even millions of dollars.
Why is it vital to reopen quickly, and what can businesses do to speed up the process?
Unless you’re in a niche industry, planning for a disaster is vital because you will have competitors able to come in and supply your customers when you are shut down. This is the equivalent of business death, because the longer it takes, the more customers and employees will go elsewhere.
Your insurance broker/risk manager should sit down with you and — just as you do regarding the physical structure and assuring adequate coverage — walk you through the potential disasters that could happen and help formulate what necessary steps to take to ensure sustainability. It’s really a team approach, asking open-ended questions and letting the business owner talk about their business, so a plan can be instituted. This plan will complement the other forms of insurance coverage you purchase to protect the rest of your business.
You can try to prepare for everything, but having a plan in place and practicing it at least annually can help get you back up and running earlier in the event of a disaster. ●
Insights Business Insurance is brought to you by Leverity Insurance Group