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The Treasury Department made it a little easier for companies to comply with the Affordable Care Act (ACA) by delaying the employer mandate to provide health insurance for companies with 50 to 99 employees.

Those businesses will have until January 2016 before facing potential penalties, while companies with 100 or more full-time equivalent (FTE) employees still face a Jan. 1, 2015, compliance deadline.

“Some of it was about giving companies time to come into compliance, but they also don’t know yet how penalties will be enforced or collected. The law doesn’t allow the IRS to collect any penalties, so they have a real challenge trying to figure out how to collect the money,” says William F. Hutter, CEO of Sequent.

Smart Business spoke with Hutter about changes in the ACA and what they mean for employers.

What break have companies with 100 or more employees been given regarding the first year of the employer mandate?

For 2015 only, instead of being required to extend coverage to 95 percent of employees they have been granted a grace period and only need to offer coverage to 70 percent of employees.

But plans still have to meet minimum essential coverage standards and have to be affordable.

While companies are getting that break, one of the most difficult aspects of the ACA is the complexity of the reporting and tracking requirements for companies. Most companies with 100 or more employees are already meeting these criteria, but it’s really a challenge for companies with variable-hour workforces.

It can be pretty challenging for retail and hospitality businesses. When you have 70 full-time employees and 50 part-time employees, tracking those variable-hour employees to get your FTE count can be pretty challenging.

What do businesses need to be doing now?

A lot of the administrative details — creating your policy, and your measurement, administrative and stability periods — need to be done now. Make sure your HR and payroll systems can handle the necessary reporting because it’s going to be virtually impossible to track it with a pencil. You need a way to extract that data from your system in a way that matches the reporting criteria.

For larger companies — 100 employees or more — their look-back period to determine employee eligibility for coverage starts this year, correct?

Yes. A large retailer based in Columbus, Ohio, decided a few months ago that employees would either be full time and eligible or part time, never working more than 27 hours a week. More companies will adopt that tactic because it’s easier. They don’t want to worry about who might become eligible in such a volatile environment as retail.

Almost every company has part-time employees who could become eligible based on the measurement period. Let’s say they work 40 hours a week during peak season, are offered and take benefits, then drop back to 20 hours a week. Normally under IRS code, going from full-time to part-time status would create an open enrollment period. But the ACA says they’re still an eligible employee because they met the criteria during the measurement period, and the change to part-time status no longer produces an open enrollment opportunity because of the stability period.

We’re trying to figure out if there’s a nuance in the ACA that address this issue, but haven’t found it. The IRS says you entered into a contract for benefits until the next open enrollment period or change in family status. So the employer would still have to provide coverage and the employee would have to pay his or her share, even if it’s too expensive on a part-time salary.

That’s one of the challenges with the ACA — it’s constantly changing and evolving. Once you digest and understand the implications of it from a business operational standpoint, it changes again. Because of the latest delay, businesses with 50 to 99 FTE employees don’t need to worry about it for a while and can probably wait until things calm down.

William F. Hutter is the CEO of Sequent. Reach him at (888) 456-3627 or bhutter@sequent.biz.

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Figuring out how much liability coverage to buy isn’t easy, but it’s very important.

General liability covers an entity for bodily injury, property damage, personal and advertising injury, and medical payments to a third party because of negligence of the insured. So, adequately selecting the appropriate limits provides defense costs and indemnification to that third party, which will properly indemnify that claimant.

“As an organization, ask yourself, ‘If my limits are not enough to cover the injury, what happens?’” says Cliff Baseler, vice president at SeibertKeck Insurance Agency. “You hope the insurance company will offer a settlement at your policy limits or you might look at out-of-pocket costs.”

Smart Business spoke with Baseler about setting limits of liability.

How can business owners know what limits of liability to purchase?

First, review the limits that your vendors and customers have on their insurance requirements. Many businesses purchase a $1 million occurrence policy with a $2 million aggregate limit for the general liability policy. From there, adding an umbrella or excess policy provides additional limits over your original policies.

The question becomes how much is enough. It’s a balancing act between purchasing exuberant limits that exceed industry expectations or leaving your company on the short side and potentially exhausting policies. If policies are exhausted, you could be covering claims yourself.
More exposed industries will need to buy higher limits, such as manufacturers that produce products with the potential to impact many people or those who face class action potential.

The challenge for many startup companies is having enough capital to cover the cost of purchasing adequate limits. As a well-established company, it is important to look at the cost-benefit of adding additional umbrella limits. In addition, when looking at job contracts, it is critical to make sure your limits match those of the subcontractor or contract requirements.

How can you use benchmarking to help discover the best liability limits?

A benchmarking report is a tool, not an exact science. It takes into account many different factors, such as location, industry size, revenue, employees, etc., to compare companies in the same industry segment. Benchmarking an organization against its respective industry can provide a range of insurance program premiums, limits and retentions commonly used in the industry.

Having this important tool should allow business leaders the piece of mind that they are adequately insuring their company at a competitive cost. Also, in the event of a claim, it can justify the limits purchased if the claim should exceed that limit.
An informal way to benchmark is by attending trade associations or other industry events, so you can ask peers for their limits of liability. Networking is a great way to understand how liability limits are affecting others, before you have to deal with it.

What do marketplace trends like severability tell business owners?

The severity loss trend — the change in size of an individual loss over a period of time — is staggering. According to Chubb, in 1973, a moderate brain damage injury award was $1.24 million; today, that same award is closer to $5 million.

Chubb reports that in 2010 the median compensatory award in Ohio was $13,000, while nationally 12 percent of all jury awards are $1 million or more. In addition, 57 percent of the total awarded damage for commercial/industrial product liability verdicts is for the plaintiff; the remaining amount is for additional costs. These costs include the rise in mass litigation, the high cost of defending product suits, the need for many experts in complex situations or additional awarded damages. This means $1 million of coverage is not always enough to cover the actual injury. The costs associated with a claim are far greater than what most people perceive as ‘enough insurance.’

There’s no easy answer to finding the right liability limit. It may seem ridiculous for a small company to buy $25 million in limits, but what if it has a large automobile fleet? In the end, the most important tool is to have a proactive relationship with your agent. An experienced client advocate will responsibly inform a client on how to properly balance its limit of liability and dollars.

Cliff Baseler is a vice president at SeibertKeck Insurance Agency. Reach him at (614) 246-7475 or cbaseler@seibertkeck.com.

Insights Business Insurance is brought to you by SeibertKeck

With the ongoing implementation of health care reform, many employer groups have missed the obligations set forth in the Employee Retirement Income Security Act of 1974 (ERISA).

“The federal government has started systematic audits of group health plans, primarily for compliance with health care reform. They will also include compliance for ERISA. A key provision requires plan participants to be provided with a Summary Plan Description (SPD),” says Chuck Whitford, a client advisor at JRG Advisors.

A SPD is a document that is provided to plan participants to explain the plan’s benefits, claims review procedures and participants’ rights. ERISA contains standards for distribution and the information that must be included.

Smart Business spoke with Whitford about what you should know about your SPD obligations.

What are big misconceptions about SPDs?

The two biggest misconceptions among employers are 1) only large employers are required to provide SPDs and 2) the benefit booklet issued by the insurance company fulfills the obligation to provide participants with a SPD. In fact, all group health plans subject to ERISA must provide participants with a SPD, regardless of size. Both insured and self-funded group plans must comply with ERISA’s SPD requirements.

The insurance company booklet will contain detailed information regarding the plan benefits and coverage. In many cases, however, the plan sponsor (typically the employer) will need to provide additional information not contained within the insurance booklet to comply with the SPD content requirements.

What are employers’ SPD responsibilities?

Employers are responsible for providing a SPD within 120 days of starting a group health plan; within 90 days of enrollment for new participants; within 30 days of a participant’s request for a SPD; every five years if material modifications are made during that period; and every 10 years if no changes have occurred.

The plan sponsor also must provide a SPD to the Department of Labor within 30 days of the request. Failure to do so can result in a civil penalty of up to $110 per day for each day such failure continues, subject to a maximum penalty of $1,100 per request. Multiple requests for the same or similar documents are considered separate requests.

A companion document, a Summary of Material Modifications, must be provided within 210 days after the close of the plan year in which a change was adopted. If benefits or services are materially reduced, participants must be provided notice within 60 days from adoption.

In addition to the SPD, the Affordable Care Act requires plan administrators and issuers to provide a Summary of Benefits and Coverage 60 days in advance of any change in plan terms or coverage that takes place mid-plan year.

The plan administrator is required to provide the SPD to participants in a manner reasonably calculated to ensure actual receipt of material by the participant.

Employers may deliver the document by hand or send it by U.S. mail. First class is preferred, but second or third class is acceptable if return and forwarding postage is guaranteed and address correction is requested. If the SPD is sent electronically, it must follow the Department of Labor’s safe harbor provision applicable to the electronic delivery of SPDs.

How can employers streamline their efforts?

For the sake of simplicity, rather than having a separate SPD for each benefit offered, an employer can combine all ERISA-covered benefits under a single document that includes the SPD. It can function as both the plan document and the SPD.

Rather than being another paperwork burden, use this document to streamline compliance efforts. Besides the required plan provisions, there are many administrative functions that are not required to be in the plan document, such as filing creditable coverage certifications and distributing various notices. When the government audits, it asks the employer to prove it met all additional requirements, such as showing the notices or certifications and producing evidence they were provided as required.

It makes sense for employers to review what and how they communicate ERISA-required information to plan participants. You will want all documents in order when the Department of Labor comes calling.

Chuck Whitford is a client advisor at JRG Advisors. Reach him at (412) 456-7257 or chuck.whitford@jrgadvisors.net.

Insights Employee Benefits is brought to you by JRG Advisors

Abuse of alcohol and drugs in the workplace is a reality that employers cannot afford to overlook. According to a 2008 study by the Substance Abuse and Mental Health Services Administration, more than 70 percent of the admitted drug and alcohol abusers in the country are employed, and a majority of those are full-time employees.

The costs to an employer can come in different forms. A study by the National Institute on Drug Abuse found that drug-using employees are 2.5 times more likely to have absences of eight days or more, three times more likely to be late for work and five times more likely to file a workers’ compensation claim.

“Alcohol and drug abuse on the job can cost employers money in many ways. Some of the ways are easily visible, such as higher health care premiums. Other ways are more covert, such as absenteeism, accidents and theft,” says Jan Nedin, MBA, MSEd, RCC, a senior account manager at LifeSolutions, UPMC Insurance Services Division.

Smart Business spoke with Nedin about how to address alcohol and drug abuse at your organization.

What’s the first step to proactively approaching this problem?

Employers must develop a substance abuse policy. It should include:

  • A requirement that all employees report to work and remain free of alcohol, mood-altering drugs and other intoxicants.

  • Acknowledgement that the company recognizes alcoholism and drug abuse as illnesses that are major potential problems regarding health, safety, security and productivity.

  • A statement indicating that behavior and performance problems related to alcohol and drug abuse should be identified early and dealt with constructively via professional evaluation and treatment.

  • A clear statement that chemically influenced behavior and/or performance will not be tolerated and could result in discharge.

How can an employee assistance program (EAP) help?

An EAP is a confidential consultation, assessment and referral service available to employees and supervisors to deal with recognition and treatment of substance abuse problems, as well as other personal problems that may be affecting an employee’s performance. It is an extremely valuable tool in dealing effectively with these problems.

What roles do supervisors play?

Supervisors need to know the company policies and procedures, monitor employees’ performance and behavior, and document performance problems. It is not a supervisor’s job to diagnose drug or alcohol problems — that should be left to the professionals. An EAP consultant can train supervisors on when to refer drug abuse and alcohol matters to the EAP for assessment.

What else is important to remember?

Design appropriate health plan coverage. Efforts to help the employee will be much more challenging unless health plan coverage is in place that allows employees to get treatment as needed.

Consider pre-employment and random drug screening. This is not the answer, but rather a tool that must be utilized wisely and cautiously. Pre-employment screening can weed out undesirable applicants so you have less of this problem to deal with after hiring.

If unionized, involve the union. When unions are present, they must be involved for the program to be effective.

Secure good legal counsel. Be sure to have policies and procedures reviewed and approved by a good labor relations attorney prior to implementation.

Don’t make it a witch hunt. Turning a program into a concentrated search for substance abusers may be counterproductive. Place your emphasis on recognizing and helping those who exhibit problems.

Do not concentrate solely on drugs. Alcohol, which is also a drug, can be just as serious a problem, if not more so, and all should be equally addressed.

LifeSolutions is part of the integrated partner companies of the UPMC Insurance Services Division, which offer a full range of insurance programs and products. The partner companies include UPMC Health Plan, UPMC WorkPartners, UPMC for You (Medical Assistance), Askesis Development Group, Community Care Behavioral Health and E-Benefits.

Jan Nedin, MBA, MSEd, RCC, is a senior account manager at LifeSolutions, a UPMC Insurance Services Division. Reach her at (412) 454-8488 or nedinjs2@upmc.edu.

Insights Health Care is brought to you by UPMC Health Plan

A 2013 survey of 2,000 U.S. health care consumers found that 83 percent are entirely unfamiliar with private exchanges, according to Accenture, a global management consulting company.

A Kaiser Health poll conducted at the same time found that almost half of respondents didn’t understand that public exchanges are a provision of the Affordable Care Act (ACA).

A year later, those numbers might have moved somewhat, but the confusion and caution about the health care exchange concept is still causing slow initial enrollment for both.

“I haven’t seen a massive uptake on the private exchanges yet,” says Mark Haegele, director of sales and account management at HealthLink. “But I have started to see, for the first time, a few employers say, ‘I’m no longer offering insurance, and you can just go on the public exchange.’”

However, the wait-and-see approach may change soon. By 2017, private exchanges are expected to catch up to public exchanges, with one in five Americans purchasing benefits from a health insurance exchange, Accenture projects.

Smart Business spoke with Haegele about how the two exchange types differ.

How are private exchanges different from the public ones?

The public exchanges, which are mandated by the ACA, allow certain unemployed individuals, individuals with employer-sponsored plans and some small companies to purchase health insurance. The exchanges are sponsored by the government, either state or federal, and cover medical and prescription drugs with four levels of coverage. The individual consumers and small employer groups pay for the coverage, with some eligible to receive government subsidies.

Private exchanges are available to employees of companies who decide to participate. Right now, only a few organizations are offering private exchanges, such as Aon Hewitt, Towers Watson and Gallagher Benefit Services, Inc. The employer sponsors the coverage, but a private exchange has a broad range of coverage from medical and prescription drugs to dental, vision and voluntary benefits. Like a traditional health plan, usually the employer and employee each pay for part of the coverage.

What’s the attraction to private exchanges? Do they help employers control health costs?

Private exchanges are a way for employers to easily establish a defined contribution-type health plan. They can say, ‘I spent $1 million last year on health care for my employees. I’m willing to spend $1 million plus 3 percent next year, but that’s it.’ Then, every person gets an allocation and can choose within the available plans.

Private exchanges create predictability. You’re buying a more budget-friendly solution, that helps employers be one more step removed from insurance, versus managing your own health plan. In fact, it may end up being a stepping-stone to the public exchanges. Once employees get used to exchange-type health plans, some employers may decide to stop health coverage altogether, having them go on the public exchange.

An exchange doesn’t inherently do anything to control health care costs. It’s not a silver bullet. The claims are still the claims. The health status is still the health status. And the insurance companies still have to price each plan with their underwriters. You can build in prevention measures to keep costs down, but that’s like any health plan.

What else should employers know about private exchanges?

So far, private exchanges are structured as a single carrier solution. For example, if Aon Hewitt’s private exchange has Anthem, UnitedHealthcare and Cigna, a 500-life employer can go to the exchange and pick one of those three carriers. Then, health plan members have a menu of plan offerings under that single carrier.

Typically, the majority of employer-sponsored health plans have two or three options. Under the exchange model, you might have upward of 10 choices, as well as ancillary coverages. There are still plenty of choices, but it’s not like each health plan member can decide between UnitedHealthcare, Anthem and Cigna. It basically puts different carriers’ defined contribution plans in a room together, making it easier for employers to choose one.

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

Insights Health Care is brought to you by HealthLink

Monday, 10 March 2014 01:46

How to keep the 'family' in a family business

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Some firms owned or dominated by family have achieved monumental success. Others have found the transition process to be more difficult. Relentless competition and struggle for customer loyalty, combined with the thorny issues of family dynamics, prove challenging.

When preparing to transfer a family business, the first step is making certain each successor is fully committed. Talk to them well in advance and explain the benefits and pitfalls from the perspective of an owner.

Prior to joining the family business, outside employment in a related field is beneficial. “Working for an accounting, finance or legal firm can help a member of the younger generation gain confidence and stature while attaining valuable knowledge,” says Howard Greenberg, managing member of Semanoff Ormsby Greenberg & Torchia.

Smart Business spoke with Greenberg about the characteristics of different generations, family dynamics and the importance of outside help.

How would you describe a typical entrepreneurial founder?

Typically, entrepreneurial founders do not have significant resources, but they do have lots of resourcefulness, drive and passion for the business, talent, and willingness to work very long hours with little pay. These characteristics, along with an intense drive to succeed, help an entrepreneur create something that can be passed on to the next generation.

What characteristics does the second generation typically possess?

The second generation watched Dad and/or Mom exert their efforts into their venture, witnessed their passion, and it rubbed off on them. They feel the responsibility to further the business and want to look good for their parents. Although they might not have quite the same drive, they may have the privilege of greater resources and more education. They are often successful at maintaining, growing and managing the business.

What changes with the third generation?

This is where problems arise and where some outside help is required. Often, the third generation has more resources, more education and more alternatives than the founding patriarch/matriarch had. But they may have other interests, lack the same abilities, and there are usually more of them.

How should management issues be handled?

You shouldn’t staff your business based on family. Staff it based on talent. Perhaps your family has talented managers, or people in finance. If not, you need to fill the gaps in with non-family members. Similarly, if the third generation isn’t ready to take the reigns, bring in interim managers as caretakers until the younger generation is ready for its role.

What problems can arise with shared third-generation ownership?

The people who run the business often resent producing for the people who just inherited the business. Conversely, those who inherited the business often resent those who run the business because of their salaries and compensation.

It may be better to provide the people not actively running the business with other assets from the estate. To reward long-term performance for a successor generation running the business, it’s advised that the company recapitalize to lock in the current value with preferred interests. This provides the generation ceding control with the value of their interests, and provides the next generation to control with the value of their future contributions. Include these provisions in shareholder and operating agreements as well as employment agreements and continuation plans.

Why use outside consultants?

It’s nearly impossible for the first or second generation to objectively evaluate the talents and value of their children. And if the second generation comprises more than one sibling, there will be arguments concerning rewarding the third generation and picking leaders. And trying to make things equal for everyone is a mistake because people are not equal. Outside advisers can help make those decisions objectively. They can assist in preparing the comprehensive agreements that are carefully tailored to the particular family business. Doing this in advance of the generational transition is highly recommended.

Howard Greenberg is a managing member of Semanoff Ormsby Greenberg & Torchia, LLC. Reach him at (215) 887-3042 or hgreenberg@sogtlaw.com.

Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC

In our increasingly digital world, meaningful conversation has become a scarcity. However, for those in leadership, discovering the lost art of conversation has perhaps never been more critical.

To harness the power of conversation to strengthen and grow your organization, practice these 10 principles:

 

1. Converse — even if you think you can’t.

You need not be born as an expert conversationalist. Conversation leadership can be learned and practiced. What’s more, this skill is essential to effective leadership. Practice your conversation skills by beginning conversations with others and seeing them through.

 

2. Converse across hierarchies.

It is critical that you step outside of your zone to talk to people you oversee — as well as those you answer to. These conversations can lead to valuable insights from different perspectives. Cross hierarchies, silos and barriers to talk to others, and then integrate what you learn into your peer conversations.

 

3. Converse for intimacy, not efficiency.

If you’re watching the clock, you’re not conversing. Speed encourages an efficient exchange of information, but unhurried conversation bonds individuals and reveals truths. To engage in meaningful conversation, stop watching the clock.

4. Converse as though you are sitting at your kitchen table.

Many of the important conversations had at home offer lessons that can be applied to a business setting as well. Use what you learn at home — such as how to honor traditions, manage conflict and hear both good and bad news — to make your business conversations meaningful.

 

5. Converse across mediums.

Do not ignore any medium where conversation is happening; instead, embrace it. And beyond that, keep your ears attuned to where the conversation will migrate next.

 

6. Never stop learning.

Converse with others and watch skilled conversationalists in action as a way to continue learning and growing.

 

7. The world is our job.

We are part of the matrix that knits humanity together, and we belong in the debates that shape our world. Engage in the global conversation by conversing with people from around the world and exploring other countries as often as possible.

 

8. The community conversation is ongoing.

Conversation is going on in the communities around you. If you are not participating, you are more than quiet; to the consumer, you are aloof, even uncaring. Engagement is not just an opportunity, it’s a demand. Be sure that you are participating in the community conversation.

9. Time isn’t money; connection is.

Far too often, we assume in business that the bottom line is the driver of all interactions. Everyone wants a great price, it’s true; but everyone needs interaction and connection. Keep your attention focused in the right place: building connections.

 

10. The best offense is a good conversation.

It’s natural when under attack to want to circle the wagons and go into battle mode. But conversation with an outsider — an individual who can keep emotion out of the discussion and give you the perspective you need to make the best choice — may help you see a new way forward. Call on those outsiders for honest conversations about how to best move forward.

 

You don’t need an innate gift of gab to put these principles into action. Practice starting and maintaining the conversation, and observe what important insights come to light. As a leader, conversation is a skill you cannot afford to overlook.

 

Jim McCann is the founder and CEO of 1-800-Flowers.com and author of the new book, “Talk is (Not!) Cheap: The Art of Conversation Leadership.” A successful entrepreneur and public speaker, McCann’s passion is helping people deliver smiles. His belief in the universal need for social connections and interaction led to his founding of 1-800-Flowers.com, which he has grown into the world’s leading florist and gift shop, and Celebrations.com, a leading website for expert party planning content and advice. 

For most company buyers, taxes are a priority when negotiating a purchase price. However, if tax issues are neglected during the integration phase, the negative consequences can be serious. To improve the likelihood of a successful merger, it’s important to devote resources to intensive tax planning before — and after — your deal closes.

During deal negotiations, you and the seller will likely discuss issues such as deductibility of transaction costs and the amount of local, state and federal tax obligations the parties will owe upon signing the deal. Often, deal structures such as asset sales can benefit one party and have negative tax consequences for the other, so it’s common to wrangle over taxes at this stage, says Sean Muller, partner-in-charge of Houston Tax and Strategic Business Services at Weaver.

“With adequate planning, companies can be spared from costly tax-related surprises after the transaction closes and integration of the acquired business begins,” Muller says. “Tax management during integration can also help your company capture synergies more quickly and efficiently.” You may, for example, have based your purchase price on the assumption that you’ll achieve a certain percentage of cost reductions via post-merger synergies. However, if your tax projections are flawed or you fail to follow through on earlier tax assumptions, such synergies may not be realized.

Smart Business spoke with Muller about tax planning after the deal closes.

What is one of the most important tax-related tasks in a deal?

Integrating accounting departments is critical, and there’s no time to waste. The seller may have to file federal and state income tax returns or extensions either as a combined entity with the buyer or as a separate entity within a few months following the transaction’s close. Companies must also account for any short-term tax obligations arising from the acquisition.

To ensure the two departments integrate quickly and are ready to prepare the required tax documents, decide well in advance of closing which accounting personnel to retain. If different tax processing software or different accounting methods are used, choose between them as soon as feasible. Understand that, if your acquisition has been using a different accounting method, you’ll need to revise previous tax filings to align them with your own accounting system.

What are the major areas of concern for companies related to tax planning and operational synergies?

Before starting to integrate products, personnel and facilities, examine the tax implications of those actions. Major areas of concern include:

  • Supply chain integration. Combining the logistical operations of both companies may make fiscal sense on paper, but there could be tax consequences. Say, for example, that you’re planning to close your seller’s main warehouse and fold operations into your company’s existing warehouse facilities. What if the acquisition’s warehouse is domiciled in a more favorable tax locale than your warehouse?

  • Divestitures and sell-offs. Buyers often spin off unwanted divisions or products when they acquire a business, but from a tax standpoint such moves can be costly. For example, selling a segment could eliminate certain tax write-offs or protections. You also need to plan for the tax consequences of selling newly acquired assets.

  • Global implications. International acquisitions can be a tax minefield. Companies should keep in mind the kinds of new exposures the deal carries, such as value-added taxes. Also, consider how a foreign purchase may affect your company’s effective tax rate. Be sure your M&A advisory team includes people who are knowledgeable about the relevant tax laws.

  • Enterprise resource planning (ERP). If the two companies’ ERP systems aren’t merged and synchronized, data collection could slow or you could lose tax data. This could affect the accuracy and speed of the combined organization’s financial reporting.

When acquiring a company, your to-do list will be long, which means you can’t devote all of your time to the deal’s potential tax implications. However, the tax consequences of M&A decisions may be costly and could impact your company for years. So, if you don’t have the necessary tax expertise in-house, work with outside advisers that do.

Sean Muller is the partner-in-charge of Houston Tax and Strategic Business Services at Weaver. Reach him at (832) 320-3293 or sean.muller@weaver.com.

Insights Accounting is brought to you by Weaver

When Gordy Opitz talks about ComDoc Inc., he starts at the beginning, explaining matter-of-factly that Walter G. Griffith founded the business equipment sales and service company in Akron in 1955. He traces its financial growth into the millions of dollars and outlines its industry’s evolution.

But the part of the story that elicits the most enthusiasm from Opitz involves the ComDoc employee stock ownership plan, which took 21 years to make its 615 employees 100 percent owners.

“We took an unbelievable amount of pride in being able to say to people that when you are working with ComDoc, you are working with people who own the company,” says Opitz, the company’s president and CEO. “That was an incredibly exciting time for us.”

Those exciting times, however, would come under threat. ComDoc was facing two serious obstacles in 2008: The great financial chill that had befallen the economy, and the loss of its largest product supplier, Ricoh, which was acquired by ComDoc’s biggest competitor, ostensibly pitting the former partners against each other.

Here’s how Optiz lead ComDoc through a turbulent period by ignoring the noise that could have silenced the company.

Strange bedfellows

As ComDoc was moving toward 100 percent employee ownership, it was keeping its eye on Xerox, the industry leader, benchmarking with it to determine a fair share price for its own stock.

“As long as we could stay within 5 to 7 percent of that share price, we were going to keep it as an employee-owned company, which we were able to accomplish,” Opitz says.

ComDoc, at the time, was generating about $125 million in annual revenue. It had a great 2007 and was having a great 2008 when mid-year, Xerox inquired about ComDoc’s interest in being acquired.

Xerox’s midmarket customers had been a target for ComDoc. According to Opitz, “We built our business by going after Xerox placements.” But Xerox adjusted its strategy.

“Xerox recognized that the independent dealers, the ComDocs of the world, were closer to the street, closer to the customer, more effective, more efficient, had better billing processes and better service to their clients — all the things that we had done in building ComDoc,” Opitz says.

Gordy Opitz, ComDoc IncSimultaneously, the economy was cooling and ComDoc’s primary product supplier decided to sell direct to the customer. It was then that Xerox made its offer.

“Xerox put something in front of us and we knew it was our fiduciary responsibility to do the right thing for all of our shareholders,” Opitz says. “And we sincerely believed, given the circumstances in front of us, that making sure that our people who had been a part of this organization for many, many years were going to be secure. And that’s exactly what happened.”

ComDoc agreed to be acquired by Xerox, and the deal was finalized in February 2009.

It was a difficult decision to let go of the ESOP the company had worked so long to achieve, Opitz says, but the acquisition had a strong appeal.

“Our employees never had to worry about whether that stock price was going to decrease by 15 or 20 percent in one year, and how long it would take to recoup that drop,” he says.

Xerox was going to allow ComDoc to operate within the culture it had developed over the years, though it was under the new corporate ownership. The move, however, wasn’t without some turbulence.

“As we made the transition, I would say for the leadership group, there was angst involved because we had built succession plans moving forward for the future. Many of us on the leadership team had worked together for 20-plus years. We had been excited about what the future held for ComDoc,” he says.

For the most part, the company was able to retain its key people. Though there was some loss.

“I could probably count on one hand how many people ended up leaving ComDoc because of the transition,” Opitz says.

The hardest transition

While it was able to retain most employees as it transitioned from ESOP to corporate ownership, ComDoc was still facing the loss of its No. 1 product supplier, Ricoh, which, at the time represented about 80 percent of ComDoc’s business.

IKON Office Solutions, a multibillion-dollar company, and ComDoc’s biggest competitor bought Ricoh. Having lost its primary supplier, ComDoc got to work learning the product line of its new corporate owner, Xerox.

Technicians on the service side of ComDoc’s business were somewhat accustomed to servicing different products because there had been many iterations to the company’s product line, which foundationally was 3M, transitioning through Harris 3M, Lanier and Ricoh.

“So we had been used to selling and servicing different products. It was always at our speed, though. In this case, the race came to a quick halt in February 2009, and we could no longer sell Ricoh, so we immediately had to switch to the Xerox product line,” Opitz says. “That was the hardest transition, and I’m going to call it the learning phase — learning the product and then training all our service technicians in being able to service it.”

The task of servicing a brand new product line in a very short time was daunting. Coupled with the company’s sagging morale and the challenge was even more difficult. To get his company headed in the right direction, Opitz had to help his employees manage the problems individually and keep the lines of communication open.

“If you think about communication, it isn’t about all the times when things are going right, it’s also about finding out how people are feeling, what they’re thinking, being able to listen to them and help them understand and provide perspective,” Opitz says.

By having those conversations, he found that what was an issue to some people was irrelevant to others.
Gordy Opitz, ComDoc Inc
“But you’d never know unless you really stopped and asked the question,” Optiz says.

The next step was to reduce all the challenges the company faced into manageable tasks.

“You can’t allow it to become so overbearing that it consumes your thought process,” Opitz says. “We’ve always approached business that way — break it down into its simplest form and take these factors as they’re given to you. What are the pluses? What are the minuses? How do we sort through it? What are the strategies and tactics to push through it? And when you really break a task down, it sure becomes a lot easier to get after it.”

Learning to walk again

That philosophy was applied to training. Service technicians learned the product line at ComDoc’s service training center where they’d work on the product for three to five days to become proficient, and then follow up on their training in the field.

To train its sales force, the company utilized training webinars and developed matrixes of e-learning for each product.

“We would set matrixes up for each of our people with the products. They could do e-learning two hours a night from 5 to 7 p.m. So there was a lot of personal pride, there was a lot of time commitment by our people to get that accomplished.

“We had more than 200 technicians who had fully trained on certain products. I believe the first year we had more than 12,000 hours of training,” he says, which includes both the sales and service sides of the business.

“We had a big vision of what to do and we continued to break that down into small tasks, small focus areas, and we just made our mind up that we weren’t going to let external things influence our company,” Opitz says.

Though it’s a simple philosophy, it was still a very difficult transition. The year the company was acquired was flat compared to the prior one. But once the company started to understand Xerox and its product line, it started to expand, seeing its managed print business grow exponentially during that period.

ComDoc increased its revenues and profitability every year between 2009 and 2013. It grew from $125 million to $155 million in revenue during that time frame and its employee count has increased to 675 employees. ComDoc’s customer base continued to renew and grow year-over-year.

“And every year we just continue to challenge ourselves to continue to get bigger and stronger,” Opitz says.

A tough lesson

Once a company suddenly has the odds stacked against it, there are some simple steps to take to address the issue.

“Communicate early and often with your people,” Opitz says. “Make sure you have shared buy-in for what you’re trying to accomplish, and help people break down their challenges or tasks into small pieces and work hard at getting a resolution to them.

“Don’t let people become overwhelmed with what they believe might happen or what they believe might change.”

Opitz says he just tried to do the best he could every day and tried not to make the circumstances out to be an alarming issue so his colleagues didn’t become overly concerned.

“In my mind, at that time, ComDoc had more than 20,000 customers that had been great, loyal, ComDoc customers who knew our people personally,” Opitz says. “And if we were doing all the right things by our customers while in a product change, I just truly believed in my heart of hearts, that our people would find a way to work through it.”

Takeaways:

  • Communicate early and often.
  • Breakdown challenges into manageable tasks.
  • Do what’s best for the company and its employees no matter how difficult.


The Gordy Opitz File:

Name: Gordy Opitz
Title: President and CEO
Company: ComDoc Inc.

Birthplace: Meadville, Pa.

Education: He received a bachelor of arts in education from Westminster College.

What did you learn from your days as the assistant general manager for the Atlanta Braves AA team? It’s very simple. Be willing to do anything. I was a shortstop and third baseman for the Westminster Titans. The front offices for minor league teams 30 years ago were small, so, when I say be willing to do anything, I mean there were some days where we did all the marketing for the club. There were days we helped sell tickets. There were days that if it rained we helped cover the field. It was a ton of fun. I realized it doesn’t matter what your title is. If the job needs to be done, you’ve got to figure out a way to go accomplish it.

Who has done the most to inform your perspective on business? Retired ComDoc Chairman Riley Lochridge and former ComDoc President and CEO Larry Frank. They taught us the business, and all the things I’ve talked about before — let’s make sure we continue to do things the right way, make sure we continue to attract and retain the right people in the organization. And ask, ‘Are we building a culture that is going to allow us to grow and sustain our growth?’

How would you like to be remembered at ComDoc after you retire? I’d like to be remembered as somebody who helped make a difference and helped make ComDoc become a better place; somebody who helped fulfill our vision of being a great place to work and a great place to be a customer.

Learn more about ComDoc at:

Facebook: www.facebook.com/PRINTresponsibly

How to reach: ComDoc Inc., (330) 899-8000 or www.comdoc.com


Global branding has become increasingly popular in the past few decades. Companies are more often seeking to expand overseas into tempting and lucrative developing markets. Furthermore, the Internet has given global branding a heightened importance as websites can be accessed from anywhere. This is why international trademarks have become a necessity for companies operating in the global marketplace to ensure as much protection for their brands as possible.

Smart Business spoke with Namit Bhatt, an associate at Fay Sharpe LLP, about protecting brands when advertising abroad.

What should a company consider before expanding internationally?

One of the first steps is making sure the brand is protected at home. In the U.S., this means registering a trademark with the U.S. Patent and Trademark Office (PTO). Securing a federal trademark registration with the PTO offers the strongest protection by helping to fight dilution and infringement of the brand marks used on the company’s products and in any advertisements.

Before a company expands into a foreign marketplace, it should conduct a trademark search to look for any marks in that country that could be confused with its brand. Fighting against a conflicting trademark is costly and time consuming to a growing company; a search helps avoid that cost.

How can a company achieve international protection?

When dealing internationally, take advantage of international agreements between countries because multi-national treaties and agreements can determine branding protections. The World Trade Organization is a useful source for treaties dealing with intellectual property (IP) standards. The World Intellectual Property Organization (WIPO) is also a useful resource for determining the IP rights available. WIPO manages the Madrid Protocol, which assists the international registration of trademarks. More than ninety countries have acceded to the Madrid Protocol with India, Rwanda and Tunisia becoming members in 2013.

The Madrid Protocol allows companies that own trademark applications or registrations in a member country to expand the trademark application to other member countries with a single application. For example, a company with a registered trademark in the U.S., a member country, that desires to expand to India, can electronically file an international application with WIPO under the Madrid Protocol. The designated member countries are then notified of the international application and can examine the application for any conflicts within the local trademark system. Using this method is a convenient way to expand into a global marketplace quickly, efficiently and with one set of fees instead the expense of applying to each country individually.

Another international treaty that is helpful for global branding is the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). The TRIPS agreement establishes a minimum level of IP protections including trademarks. This means that any member country of the treaty must adopt at least the amount of protection set forth in the treaty and can choose to give more protection than the minimum.

How can a company maintain international protection?

After a company achieves trademark registration in the new marketplace, it is important to maintain and enforce the rights granted under the trademark registration. Generally, the company should maintain continuous use of their trademark to not relinquish any rights for the brand. Also, the company should watch out for any marks that could dilute the protection of a registered mark. These methods will ensure that the global branding can be used for many years after registration.

Ensuring global protection of a company’s brand has become easier as the need for international protection has increased. Companies looking to enter new markets should be mindful of the options available and consider using them. Before advertising a product in a new marketplace, a company should look to gain protection of its brand in the marketplace.

Namit Bhatt is an associate at Fay Sharpe LLP. Reach him at (216) 363-9000 or nbhatt@faysharpe.com.