Troy Sympson

Most retail tenants are subject to the whims of the economy. When the economy goes bad, business slows down, and there’s less money to pay the rent. And when the rent doesn’t get paid, landlords suffer, says Henry F. Luepke III, a partner in the litigation department at The Stolar Partnership LLP.

“A commercial landlord depends on the rent that is to be paid for all of the space that it leases out,” says Luepke. “If a retail or commercial tenant won’t or can’t pay the rent, the landlord may have to evict that tenant and replace it with one that will pay the rent. But finding a reliable replacement tenant can be a challenge. If a new tenant is not available to fill the space, the landlord may hesitate before pursuing an eviction that won’t do much more than create another empty space in a property, such as a shopping center, where each tenant relies on the traffic generated by the other tenants.”

As long as the tenant is trying to pay the rent and there is a good chance it will be able to catch up on past-due amounts, it may be in the landlord’s best interest to hold off on an eviction and instead try to work with the tenant, until it becomes clear that the rent won’t be paid.

Smart Business spoke with Luepke about problem tenants and what landlords can do to deal with them and continue to get paid.

What makes a good landlord/tenant relationship go bad?

In the beginning, the landlord/tenant relationship is an amicable one — the tenant wants to succeed so that it can pay the bills and make a profit, and the landlord wants the tenant to succeed, because if it does, the rent can be paid, the space is filled and the increased level of commercial traffic will benefit all the neighboring tenants. It’s a win-win.

But if the business starts to struggle and misses a rent payment, the relationship can quickly become adversarial. At first, some landlords may be sympathetic to the tenant’s issues. The tenant may be allowed to pay late, or the landlord may forgive a portion of the rent.

Landlords, however, have to protect their rights under the lease. When the tenant gets behind on its lease obligations, and the rent and late fees begin to add up, further efforts to accommodate the tenant are likely futile, and the landlord must take prompt action to take back the space and collect as much of the past-due amounts as possible.

What other tenant issues should landlords be on the lookout for?

One issue is building maintenance and repair. A struggling tenant who has failed to pay the rent may try to turn the tables by claiming its failure to pay rent is due to the landlord’s failure to repair some part of the occupied premises.

While such a claim generally will not relieve the tenant of its obligation to pay rent, it will complicate an action to evict and collect the amounts owed. The landlord can avoid this complication by promptly responding to tenant complaints and maintaining its premises.

Sometimes it is the tenant who has caused damage to the premises or that is conducting activities in the premises that may be hazardous or cause damage. In these instances, the landlord often must seek immediate court intervention to close the tenant’s business, prevent further damage and collect the costs of repairing the damage.

Another issue, particularly in the context of a shopping center, relates to tenant mix. One tenant may disapprove of another tenant in the same commercial center. For example, say a shopping center landlord rents commercial space to a chiropractor. The landlord then leases space in the same center to a physical therapy business. The landlord doesn’t see the two businesses as being competitive, but the chiropractor does and feels its business is being hurt as a result.

From a legal standpoint, the landlord is within its rights to lease to the physical therapy business, but from a landlord/tenant relationship standpoint, it’s an unfortunate situation for all involved. If the landlord had known that the chiropractor would object, it might not have leased to the physical therapy business. But once a lease is signed, it’s an iron-clad contract, putting the landlord between a rock and a hard place.

This is why tenant mix — and knowing your tenants — is so important.

Short of eviction, how can problem tenants be dealt with?

The threat of court-ordered eviction is a powerful tool to make tenants pay and live up to their lease obligations. Landlords can use the court system to obtain settlements and consent judgments that, if not complied with, will result in the immediate eviction of the problem tenant.

Such settlements and consent judgments are effective because they create mutually acceptable terms under which delinquent tenants can become current on their lease obligations and, at the same time, grant landlords the ability to recover immediate possession without the costs and delays of filing another lawsuit.

What preemptive actions can landlords take to avoid these problems in the first place?

A thorough, well-drafted lease will anticipate and address most problems. The lease should spell out in detail what circumstances will constitute an event of default under the lease and should state the remedies that are available after an event of default, including immediate eviction and the recovery of damages, attorneys’ fees and other costs of enforcing the lease.

Beyond that, the best thing a landlord can do is find and sign solvent, reliable tenants. Landlords should conduct proper due diligence and get detailed financial statements from prospective tenants. To help ensure payment from corporate tenants, landlords also should require written personal guarantees from the individuals and their spouses who own the corporation or other entity that is the named tenant.

Henry F. Luepke III is a partner in the litigation department at The Stolar Partnership LLP. Reach him at (314) 641-5128 or hfl@stolarlaw.com.

In today’s innovative and fast-paced business world, companies have to do all they can to protect their assets, processes and products. This is why the protection of trade secrets is such a vital issue.

There are laws in most states that provide a legal definition of a trade secret. All are essentially the same; the main point is that trade secrets consist of information that derives independent, economic value from not being known to competitors or others that could use that information.

“In other words, a trade secret gets its value from not being known by someone who could benefit economically from knowing it,” says Allan Gabriel, a partner in the Los Angeles office of Dykema Gossett PLLC. “A trade secret gives you protection against others disclosing or using information that has value to your company.”

Smart Business spoke with Gabriel about what constitutes a trade secret and how a company can protect its vital intellectual property.

How do trade secrets differ from patents, trademarks and copyrights?

They differ in a number of ways, most of it having to do with what they protect. A trade secret protects know-how — how you do something. The classic example of this is the formula for Coca-Cola. Other examples include our recent success in protecting software code that processes online employment tests and a sophisticated process to design automotive components.

Patents protect inventions that are useful, not obvious, and novel or new. Trademarks protect brand names — the name the public identifies with the product. Coca-Cola is the brand name for a cola-flavored beverage. Copyrights protect the expression of ideas authored by someone and fixed in something tangible — a book, a movie, or a song, for example.

What elements of a business are eligible for trade secret protection?

A trade secret can cover a formula, a process, a method of doing something, certain customer and pricing information and manufacturing techniques. There’s no exclusive list of what can be covered — if information has independent economic value that is gained by keeping it private, it could be protectable as a trade secret.

How long does trade secret protection last?

Simply put, for as long as the information remains a secret. Take again the Coca-Cola example. The formula has been around for a long time and it’s never been disclosed, so it will remain a trade secret for as long as it’s kept private. There are stories about how the formula is locked in a vault somewhere and only a handful of people actually know it. As long as this is the case, that trade secret protection will last.

This is different from a copyright, which lasts for the life of the author plus 50 years. Eventually, books and movies go into the public domain and are no longer protected by copyrights. Take for example, the holiday movie “It’s a Wonderful Life” — no one owns the exclusive rights to it anymore, which is why you see it all over television in December. Patents, on the other hand, last at most for 20 years after the patent is filed, approved and granted.

How do the courts interpret trade secrets?

In order to establish that a business has a trade secret, it has to prove that it meets the legal definition of one. You can’t register for a trade secret and get a stamp of approval from the trade secret office. To prove that you have a trade secret, you have to show that the information in question derives independent, economic value from not being known and that the information is maintained in a secret and confidential manner. You can’t just claim something is secret if it truly isn’t.

Consider a company that claims that the identities of its customers are trade secrets. If that company posts a list of its biggest and best customers on its website, then the information is public and therefore not eligible to be a trade secret. On the other hand, if a company makes an esoteric product — maybe a particular part or electronic component — and it’s hard to tell exactly who would buy it or be able to use it, then the identities of those customers could be protected as a trade secret, since a competitor could benefit economically from knowing who those customers are.

Another interesting aspect of trade secrets is that they can be negative information, meaning they can cover what not to do. For example, if a company manufactures a particular device and has a facility that’s closed to the public, and that company has spent years figuring out what manufacturing techniques do and don’t work, information regarding the techniques that don’t work could be trade secrets.

How should confidentiality agreements be crafted to protect trade secrets?

While it’s always a good idea to have confidentiality agreements to ensure that employees keep information secret, trade secret law independent of confidentiality agreements provides such protection. For example, if I worked for Coca-Cola and was one of the few that knew the secret formula, I couldn’t legally just go to Pepsi and reveal that formula, regardless of whether or not I had signed a confidentiality agreement.

Still, confidentiality agreements are important because having them represents evidence that you truly have a trade secret. You are taking reasonable steps to designate, define and protect what you feel is a trade secret. However, make sure that your confidentiality agreements are not too overreaching — you can’t say everything is a secret, like an accounting firm saying that its use of Excel spreadsheets is a trade secret. Confidentiality agreements should be narrowly drawn, specific and understandable.

Allan Gabriel is a partner in the Los Angeles office of Dykema Gossett PLLC. Reach him at agabriel@dykema.com or (213) 457-1706.

Similar to for-profit corporations, nonprofits and charitable organizations (hereafter “nonprofits”) are highly susceptible to myriad risks. Faced with pressures created by today’s economic environment, nonprofits participate in a fiercely competitive environment. Barriers to entry for new organizations are low, and donors can easily shift their giving to alternate organizations. Additionally, nonprofits are generally staffed with employees and volunteers who are first committed to helping the organization achieve its mission. The achievement of this mission requires considerable resources, often leaving less than adequate time for these individuals to establish and/or maintain enterprise risk management (ERM) processes.

When properly implemented, “ERM processes can not only help nonprofits safeguard assets and their reputation, they can also allow the organization to capitalize on opportunities afforded by risk taking,” says Harry Cendrowski, managing director, Cendrowski Corporate Advisors. “In this manner, ERM implementation is similar to corporate strategy initiatives.”

Smart Business spoke with Cendrowski about the risks faced by nonprofits and the manner in which a nonprofit can develop and implement an effective ERM process.

How should a nonprofit develop an ERM process?

Risk management for nonprofits begins at the highest levels of the organization, with the board and C-suite executives. Before risk management processes can be devised and implemented, these individuals must work together to identify an overarching, balanced philosophy of risk. This philosophy should detail the risks the organization is willing to bear, as well as the expected reward for taking such risks. It should also be accepted uniformly among high-level individuals, for if it is not, downstream employees and volunteers will see a fractured view of not only the organization’s risk philosophy but also the vision by which the organization will achieve its mission. This may, in turn, lead these individuals to make decisions that are not necessarily in the nonprofit’s best interest and most certainly not aligned with its balanced risk philosophy.

Once a balanced risk philosophy has been established, the risks faced by a nonprofit should be enumerated and evaluated according to their potential impact to the organization and likelihood of occurrence. A priority should be placed on mitigating high-impact/high-likelihood events, as these risks pose the greatest threat to the organization. Mitigation might include the implementation of processes designed to detect and correct risks once they have occurred, or processes designed to prevent risks from occurring.

What mistakes do organizations make in establishing ERM processes?

Many nonprofits and for-profit corporations do not allow enough time for an ERM process to take hold within the organization. They sometimes rush implementation, which, in turn, causes a lack of process ownership at the employee or volunteer level. The implementation of an ERM process requires significant cultural change; this is not something that can be altered overnight. Cultural change is an indirect effect of other organizational changes and leadership behavior; it cannot be directly effected by leadership. However, once cultural change has been embraced, and a risk-focused culture has been adopted, employees and volunteers will be conscious about the risks associated with their jobs and the impact such risks may have on the organization.

How much time should leaders and the board allot for the implementation of an ERM process?

The amount of time required for an ERM process’s implementation varies for every organization. In addition to being a function of the organization’s size, it is also a function of the current state of the organization’s environment and the approach of its employees and volunteers. If these individuals have rarely had to think about risk, an ERM process will take a considerable amount of time to implement. ERM is very similar to corporate strategy in that changes can certainly take place, but they may require considerable time to implement. Short- and long-range ERM plans should be developed, complete with key milestones and roles and responsibilities for process managers. These plans should subsequently be monitored to ensure that the organization is progressing and that the ERM process is evolving as the organization intended. This will ensure that realized benefits of the ERM process are maximized.

What benefits can nonprofits realize from ERM processes?

ERM helps nonprofits maintain their relevance and capitalize on opportunities presented by risk. For example, when its goal of defeating polio was achieved, the March of Dimes made a conscious change to focus its efforts on preventing birth defects. Without this change — or the support of the change from its donor base — the organization would probably have become irrelevant to its donors. ERM also helps nonprofits mitigate perhaps the largest risk they face: reputational risk. Stripped of a once-sterling reputation, a nonprofit will find it extremely difficult to rebuild its image. This could have far-reaching consequences beyond the direct realization of a risky event.

For example, in a university setting, misappropriation or misuse of university endowment funds could have a significant impact on the organization’s overall reputation. Both Princeton and Yale University recently settled lawsuits in which the plaintiffs alleged the universities misused millions of dollars of endowment funds. The lawsuits harmed the reputation of the university not only in the eyes of existing donors, but also potential donors looking to make contributions, faculty, staff and even potential students.

It is important to note that what begins as the realization of a seemingly isolated risk may soon impact the organization as a whole — on many levels — if a functioning ERM process is not in place.

HARRY CENDROWSKI is managing director for Cendrowski Corporate Advisors LLC. Reach him at hc@cendsel.com or (866) 717-1607, or visit the company’s website at www.cca-advisors.com.

Smart and savvy business owners are always prepared — in life and in death. They know that trusts are among the most valuable tools to ensure the future of their business and family.

But, even the best laid plans can face unexpected bumps. So what happens when a trustee or beneficiary needs to alter the language of an irrevocable trust and can’t turn to the settlor for help because he or she may now be deceased? The answer is a legal proceeding known as a trust reformation.

“Trust reformations, when done right, can add value and help solve present or future problems with the administration of the trust,” says Mark Sales, an equity member of Dykema Gossett PLLC. “If you properly plan, communicate and keep it friendly, both the trustees and beneficiaries benefit.”

Smart Business spoke with Sales about trust reformations, how they work and when and why they should be utilized.

What exactly are trust reformations and how do they work?

Typically, trust reformations involve modifying an irrevocable trust to address unanticipated changes that have occurred since its establishment or clarifying the language of the trust instrument for the benefit of trustees and beneficiaries. While you can’t change an irrevocable trust just because you want to, a court can reform a trust for valid reasons. The law governing trust modifications has become more relaxed in recent years and there are now numerous permissible reasons for seeking a reformation. As an example, maybe one of the trustees died and the trust didn’t provide a way for picking a successor trustee. Or perhaps there are so many trustees that administration of the trust has become unwieldy. There could be a change in family situation, like when the settlor’s daughter is a beneficiary, her husband is a trustee, and then the two get divorced. Or there could be a need to react to market and economic conditions, such as declining real estate or changes to tax laws. For instance, we recently handled a trust reformation that allowed the trustees to diversify assets and have more flexibility in making investments while providing some protection from litigation if the investments did not perform as expected.

There are many reasons to consider a trust reformation. If the trustees and beneficiaries are interested in saving taxes or trustee fees, protecting or enhancing trust assets, providing more flexibility on investment of assets, changing the distribution scheme set out in the trust instrument or avoiding potential litigation because the terms of the trust are vague, they should consult with their estate planners or financial advisers on whether trust reformation is appropriate.

What can cause a trust reformation to fall apart?

If you don’t think things through and get everyone involved on the same page, something that was intended to be a friendly way to add value to the trust can turn into hostile litigation. Lawyers working on a trust reformation not only need to know the substantive law and procedural rules that apply to these matters, but also need to be able to negotiate emotional issues that can arise among the parties involved in the reformation, who may come from complex family structures.

For example, we have worked on several trust reformations in which service of process was required on infant minor contingent beneficiaries. We were able to avoid a process server going to the home by having the non-interested parent (informed ahead of time) accept the service papers (which start out with the not-so-friendly introduction: ‘You have been sued’), and enter a voluntary consent to the reformation as next of friend to the minor. By doing this, we were able to avoid miscommunication and the cost and delay of having the court appoint an ad litem to represent the minor.

When everyone is on board and knows exactly what is being done, a trust reformation will achieve its desired results.

It’s also important to note that special rules apply in certain reformation proceedings. For instance, many trusts have charitable remainder beneficiaries. A settlor wants to cover his children and grandchildren, then distribute the remainder to Baylor Hospital. When doing a trust reformation in these cases, you must give notice to the attorney general of the State of Texas and obtain a response to file with the court — typically a written statement that the attorney general declines to get involved in the proceeding. If you don’t follow these rules, the trust reformation won’t be allowed. And sometimes timing is critical in getting a response from the attorney general, for instance to take advantage of changes in tax law. Having a working relationship with the attorney general’s office is essential to a successful reformation. Finally, reformations that try to take advantage of tax issues may need to be coordinated with obtaining a letter ruling from the IRS.

When a trust involves a family business or other income-producing assets, what issues can arise?

In many trusts, the family business is a key asset. If a trustee controls ownership of that family business through the trust, you can run into various problems, such as tax issues. Or if you’re the president of a company that’s held in a trust and you’re also one of the trustees, paying yourself a big salary or other benefits, another trustee or beneficiary may assert claims of self dealing, conflicts of interest and breach of fiduciary duty. A trust reformation can clarify what is or is not permitted, thus protecting against future litigation.

A different example is a family trust in which particular beneficiaries are minors who were not born when the trust was established or a class of individuals who may be born later. Yet their interests must be protected, and may actually not be the same as those of their parents. If the court appoints an ad litem to represent these minor or unborn contingent beneficiaries, the ad litem must agree to the trust reformation. It’s imperative to the success of the reformation that counsel communicate with all beneficiaries, including parents and ad litems who may be appointed, and make sure there is agreement.

Most important, if you’re going to do a trust reformation, do it for the right reasons, keep it friendly and civil and make sure the trustees, beneficiaries and all interested parties are on the same page. Then, all will gain that mutual benefit of a successful trust reformation.

Mark Sales is an equity member of Dykema Gossett PLLC. Reach him at (214) 462-6451 or msales@dykema.com.

The Internet gives many people the false sense that they can say whatever they want about a person or business with no repercussions. This is due, in large part, to the nature of the Internet, which allows people to express their opinions anonymously and seemingly without accountability.

“Internet message boards and review sites provide a venue where users — customers and pretenders alike — can offer anonymous evaluations and judgments about restaurants, hotels, medical and legal professionals and businesses,” says Mitchell L. Marinello, a partner with Novack and Macey LLP. “Unfortunately, sometimes these reviews cross the boundary between mere opinion and defamation.”

When they do, they can cause great damage, because they can linger on the Internet for years. But if a company is the victim of Internet defamation, it has remedies. Through diligent effort, a company can identify the defamers, take action to have defamatory statements removed from the Internet, require the defamers to pay damages and obtain injunctions prohibiting the defamers from doing it again.

Smart Business spoke with Marinello about Internet defamation and what a company can do to protect itself.

What is the definition of defamation?

In Illinois, defamation is divided into two categories: defamation per se and defamation per quod. Illinois recognizes four categories of statements that constitute defamation per se: words that impute the commission of a criminal offense; impute infection with a loathsome communicable disease; impute an inability to perform or want of integrity in the discharge of duties of office or employment; or impute a lack of ability in his or her trade, profession or business. Statements that constitute defamation per se are thought to be so obviously and materially harmful to the plaintiff that injury to his or her reputation may be presumed.

Statements are defamatory per quod when the defamatory character of the statement is not apparent on its face and extrinsic circumstances are necessary to demonstrate its injurious meaning; and where the statement is defamatory on its face but does not fall within one of the limited categories of statements that are actionable per se. Unlike a defamation per se action, a plaintiff bringing a defamation per quod claim is not presumed to have suffered damages and instead must plead and prove special damages in order to prevail.

What is the difference between nonactionable opinion and defamation?

Even if the words used could be considered defamatory, they must be statements of fact or mixed statements of fact and opinion to be actionable. This is determined by considering the totality of the circumstances and whether the statement can be objectively verified as true or false.

An opinion can be defamatory if it implies that undisclosed defamatory facts are the basis for the opinion. Such statements are considered to be mixed statements of opinion and fact and are actionable.

To determine if a statement is opinion or factual, Illinois courts consider whether the statement has a clear meaning for which a consensus of understanding exists; whether it is verifiable, i.e., capable of being objectively characterized as true or false; whether the literary context would influence the average reader’s readiness to infer that a statement has factual content; and whether the broader social context or setting in which it appears signals a usage as either fact or opinion.

A defamatory statement will not be characterized as nonactionable opinion unless it meets a stringent standard: only statements that cannot reasonably be interpreted as stating facts are protected. A statement of fact can also be protected as opinion if it is an obvious exaggeration.

What should you do once you learn you’ve been defamed?

The first step is to evaluate the comments and the amount of publicity they are likely to receive and make a judgment about how harmful they are and what should be done. Overreacting to negative comments can create more bad publicity or cause a disgruntled critic to become even more vocal. At the first instance, Internet defamation needs to be treated like a public relations problem.

The second step may be to ask the site if it will remove the statements. Sometimes, such comments violate a site’s policies. Defamatory comments also can be resolved over time if you believe they will be drowned out by positive comments from people pleased with your goods or services. You cannot sue the Internet provider for allowing defamatory statements to be published on its site, as Internet sites are immune from defamation suits under federal law. If the statement is so harmful that legal action is contemplated, you need to determine who posted the statements. It may be necessary to file a petition for pre-suit discovery and then to serve a subpoena on the Internet site requesting the poster’s identity.

Posters may try to prevent you from learning their identities by filing a motion to quash the subpoena, alleging they have a First Amendment right to remain anonymous. Although certain types of anonymous speech are protected, there is no constitutional right to defame. The Illinois Appellate Court recently held that it is overly broad to assert that anonymous speech, in and of itself, warrants constitutional protection. Thus, such motions should fail. All private businesses and individuals have a right to protect their reputations.

What defenses and privileges do defendants have in defamation cases?

Illinois courts recognize several privileges and defenses, including substantial truth, the fair reporting privilege, the innocent construction rule and nonactionable opinion. A successful plaintiff will likely have to overcome one or more of these.

What damages can be recovered for defamation?

There have been substantial monetary judgments issued for defamation. The judgment can include both compensatory and punitive damages.

Mitchell L. Marinello is a partner with Novack and Macey LLP. Reach him at (312) 419-6900 or MMarinello@novackmacey.com.

Despite a rebounding economy and renewed hope, the national unemployment rate is still around 9.7 percent. In Georgia, the unemployment rate is 10.5 percent, and April 2010 is the 29th consecutive month that the state’s rate has been higher than the national average.

Needless to say, this has created a very large labor pool. Add in the fact that more and more qualified professionals are being added to that labor pool every day due to budget cuts and layoffs, and you’ve got a lot of good people looking for work.

“More and more, people are willing to take jobs that they maybe wouldn’t have in the past, and they’re definitely willing to take less money or fewer benefits,” says Melissa Hulsey, president and CEO of Ashton Staffing. “This gives companies great opportunities to get more bang for their buck when hiring.”

Still, these skilled people are hard to find. Many of them turn to staffing firms, which means now is the time to take advantage of the people and services a quality staffing firm can offer.

Smart Business spoke with Hulsey about temporary labor, how it can benefit your organization and the common misperceptions that come with hiring “temps.”

Why is now a good time to utilize temporary labor?

The long-term cost of employment is uncertain at best. Companies are often less willing to commit to a person full time because they can’t plan long term what the total cost of that employee will be. Among other things, there are questions about the Federal Insurance Contributions Act (FICA) tax. Will it stay at 7.65 percent, or will it go up?

Temporary labor doesn’t have those concerns; there’s no commitment and you’ll know exactly what the cost is upfront. You get the staffing you need without the headaches and the hassles.

What benefits come with temporary labor?

No. 1, the company saves money. Employers have to cover taxes, unemployment, health care and workers’ compensation, just to name a few. And all of those costs are projected to go up in the near future. Temporary labor helps alleviate that, since the staffing agency is the one that takes on those costs. Also, if you’ve got a lot of employees working overtime, you can hire temps to fill in, without the added cost of overtime wages.

Temporary labor also saves you time. The staffing firm does all the interviewing, screening, skills testing and advertising. You just call up the firm, tell them what you need and they find the right person for the job.

Another benefit is increased flexibility. You can hire more people at peak times and pare your staff down when business is slower. Nowadays, you can bring in highly skilled temps to replace key positions that may have been eliminated or downsized. For instance, you can find a temporary director of HR to come in a few days a week to take care of any administrative tasks you may have.

Finally, temporary labor reduces a company’s risk. Bringing in help takes the pressure off of your full-time employees, reducing accidents and absenteeism and preventing burnout. With companies paring down and employees taking on increasing workloads, burnout has become an unfortunate trend. It’s true that your staff is your greatest cost, but it’s also your greatest asset. It makes sense to do whatever you can to protect that asset.

What potential pitfalls should companies be aware of when using temporary labor?

First of all, don’t just look online and call the first staffing agency you find. Compare and interview staffing agencies just like you would potential employees. Make sure that the staffing agency matches your culture, understands your needs and goals and will represent your company the way you want it to.

Also, make sure you know all of the costs involved upfront, particularly the ones that come when you want to hire the person after their temporary trial is up; sometimes a conversion fee applies.

Finally, make sure you have a system in place to measure the performance of the temporary employees. Find out whether or not the temp fits in as soon as possible. The sooner you let the staffing agency know about issues, the sooner it can get you another worker.

So, how can you ensure that you’re getting the right talent?

The key is communication. Clearly define your needs upfront. Give the staffing agency as much information as possible: what specific skills you need, how your company culture works, what kind of personality you’re looking for, the goals of the position, how long the temp will be employed, if it will be a temp-to-hire situation, etc. The more the staffing agency knows, the better it will be at finding you the people you need.

What are the common myths of temporary staffing?

There’s a stigma attached to temporary labor that it’s only unskilled, unhireable people. But the fact is there are thousands of highly skilled, highly trained people looking for work. Not only that, more and more people, particularly younger ones, only want to work on a temporary basis, as it offers them a better work-life balance.

Another myth is that it’s more expensive to utilize a staffing firm than just hiring on your own. With a staffing firm you know what the costs are upfront and you can always control those costs. That cannot be said about hiring an employee yourself.

Melissa Hulsey is president and CEO of Ashton Staffing. Reach her at (770) 419-1776 or mhulsey@ashtonstaffing.com.

If you own or operate a business, you take the necessary steps to protect the physical location of your company with a security alarm system. The problem is that these systems are reactive — they alert the police after someone enters your building.

But your company’s network and data also need to be protected. And you can’t afford to have a security system that only responds to threats as they — or after they — penetrate your system. And with managed security solutions, you don’t have to wait until the threat reaches this level, as network security solutions offer proactive protection that is easy to implement and affordable for most businesses.

Network security solutions are complete Internet security solutions. More than just a firewall device or a virtual private network (VPN) solution, a network security solution protects your networks and your Internet access, providing your company with the peace of mind that its data is secure and with increased employee productivity, says Thomas Merola, a sales engineer with Time Warner Cable Business Class.

“Any company that uses a network and/or the public Internet can benefit from a network security solution,” says Merola. “In this day and age, companies cannot afford to have their networks and data compromised.”

Smart Business spoke with Merola about network security solutions, the benefits they offer and why it’s so vital for companies to implement them in today’s business climate.

What benefits can a company see from a network security solution?

First, you get 24/7 monitoring and management, including e-mailed and Web-based management reports. You’ll always know what information is being passed through your network, enabling you to decide what needs to be changed or adjusted.

With content filtering, anti-virus, anti-spam and anti-malware services, you’ll be able to not only detect attacks and threat trends but also prevent them. Intrusion detection and prevention will protect your network by blocking backdoor file-sharing programs and controlling access to Instant Messaging (IM) and other applications.

Other features include a virtual private network (VPN) service, which provides a secure connection to remote networks. This allows you to transmit sensitive data across the Internet and securely access files in a safe environment. Also, demilitarized zone (DMZ) services give you the ability to securely host resources that need to be separate from your local area network.

Why are network security solutions so important in today’s business environment?

One-third of the time employees spend online at work is nonwork related. Internet misuse at work costs companies more than $85 billion each year due to lost productivity.

Besides that, many companies use public IM services, exposing them to risk, and few companies have clearly defined IM policies. Peer-to peer (P2P) file sharing is another area of concern, as 45 percent of executable files downloaded through P2P applications contain malicious code and a company can be liable for up to $150,000 per download if the downloaded content is copyrighted.

Because of these issues, each and every high speed Internet connection needs to be secure. Internet security must be managed 24/7 and firewalls must be managed remotely with proactive security updates and constant monitoring. Viruses, spam, spyware and malicious codes have to be stopped immediately. And all of this has to be affordable.

These are all reasons that network security solutions have become so important in today’s business environment.

What types of companies should be implementing network security solutions?

A company should implement a network security solution if:

  • Its customers conduct transactions over the Internet
  • Its customers have personal or private information stored anywhere on its network
  • Its customers have any compliance regulations
  • Its customers want to be protected against the vast variety of dangers on the Internet

What does a company need to consider when implementing a network security solution?

When looking to implement a network security solution, you need to answer the following questions:

  • How many users do you have on your network?
  • How many locations or sites do you have that you want to connect via VPN?
  • Do you scan your e-mail for spam and viruses before they reach your network?
  • Would you like to know how your network is being used, and where and for how long employees are going on the Internet?
  • Is your Unified Threat Management (UTM) suite proactive, and does it stop viruses, spyware and other threats before they reach your network?
  • Do you have a Web-based server or other externally accessed servers?

What are the consequences of not properly monitoring your system?

A company can face stiff fines from the federal government when it comes to credit card, Sarbanes-Oxley (SOX) and Health Insurance Portability and Accountability Act (HIPAA) violations. And you can lose all of your company and personal data in an instant.

Is the ROI of network security solutions measurable?

Depending on the size of your business, you can begin to see an ROI almost immediately. The cost of a virus, spyware or malware destroying your network is immeasurable, as is having your vital company information fall into the hands of your competitors.

Thomas Merola is a sales engineer with Time Warner Cable Business Class. Reach him at (614) 255-2819 or thomas.merola@twcable.com.

Many small business owners worry that they are susceptible to fraud and the potential impact it could have on their businesses.

In a recent survey by Deloitte, only 6 percent of respondents thought fraud was uncommon in private enterprises, and nearly half of the participants thought that the internal controls at private companies were insufficient to decrease the risk of fraud. In addition, many business owners are highly pessimistic about the current economic situation and their businesses’ short-term financial futures. A recent survey by Wells Fargo and Gallup found that small business owners were especially pessimistic about the future of their businesses, with 42 percent expecting it to be “somewhat” or “very” difficult to obtain credit, and 22 percent expecting their companies’ financial situations to be “somewhat” or “very” bad a year from now.

“Small business owners are being affected by two significant forces, each of which threatens their current and future profitability, as well as their prospects for survival: poor business environment and susceptibility to fraud,” says Harry Cendrowski, CPA, ABV, CFF, CFE, CVA, CFD, CFFA and managing director of Cendrowski Corporate Advisors. “However, comprehensive operational and risk assessments can help managers unlock value within their organizations and also preserve value through fraud deterrence.”

Smart Business spoke with Cendrowski about how to approach operational and risk assessments, and the steps that business owners can take to reduce fraud.

What are the key components of an operational assessment?

Operational assessments examine five areas of a business:

  • Business environment
  • Risk assessment
  • Control activities
  • Information and communication
  • Monitoring

An assessment of each of these factors is required for publicly traded companies but is less frequently performed for privately held firms. Each of these components is interrelated, and together they describe a business’s internal control environment.

How does a risk assessment differ from an operational assessment?

A risk assessment is really a deep dive into one component of operational assessments and involves the identification and analysis of potential risks that may impede an organization from achieving its strategic objectives. These include both internal and external risks to the organization.

Through risk assessments, organizational managers can develop plans to mitigate the risks an organization may face, helping to preserve their firm’s strategic and operational goals from potential threats and, hence, its value. Actively identifying internal risks can also help organizational managers remove the opportunity for fraudulent activity.

Moreover, while operational assessments may help an organization unlock, as well as preserve, shareholder value, risk assessments primarily focus on the latter activity.

How can operational and risk assessments help business owners save money?

Operational assessments can help business owners identify inefficiencies and waste, ensure sound decision-making and deter fraud. Each of these activities effectively reduces the cost of business, improving profitability and returns to shareholders.

Risk assessments help businesses preserve value within the firm and safeguard assets by identifying potential risks, quantifying the impact and likelihood of risks, and developing a plan for remediation. They help reduce the volatility of a firm’s earnings to a level commensurate with the organization’s risk appetite. And in some cases, they may help organizational managers insulate the firm from risks, including fraud, that might disrupt the accomplishment of organizational objectives.

Is the primary goal of risk assessments to reduce the risks an organization faces?

Not necessarily. The goal of a risk assessment is for organizational managers to better understand the impact and likelihood of risks they face, and to evaluate whether these risks are in line with the organization’s appetite for risk.

If they are outside the organization’s risk appetite, a firm’s operations and/or control structure must be changed to reduce the impact and likelihood of risks, or the organization should outsource the risks to a third party. If either of these activities does not take place, the firm may overexpose itself to risks and face potential degradation in its value.

For example, many private and publicly traded company managers and board members did not fully understand the risks their organizations bore prior to the global economic crisis. As a result, numerous financial institutions went out of businesses, but many types of businesses also found themselves succumbing to the economic aftershocks that proceeded financial institution failures.

What impact has fraud had upon organizations?

It’s hard to quantify the exact impact of fraud because much of it goes unreported. Some companies are afraid to risk their reputation should word of the fraud spread to their customers and suppliers.

However, the Association of Certified Fraud Examiners (ACFE) has estimated that the typical organization loses 5 percent of its annual revenue to fraud. Moreover, the ACFE found small businesses are particularly vulnerable to fraud because they generally lack controls to protect their assets from fraud.

This is one reason why small businesses, in particular, should focus on comprehensive operational and risk assessments. Significant amounts of value can be lost due to fraud. In the worst cases, the end result is bankruptcy.

HARRY CENDROWSKI, CPA, ABV, CFF, CFE, CVA, CFD, CFFA, is managing director of Cendrowski Corporate Advisors LLC. Reach him at hc@cendsel.com or (866) 717-1607, or visit the firm’s Web site at www.cca-advisors.com.

Nobody looks forward to tax planning, but it’s something that everyone, at some point, must do.

However, instead of looking at tax planning as a burden, look at taxes as part of the cost of a transaction. The focus, therefore, should not necessarily be on the minimization of taxes but on the maximization of the net present value of after-tax cash flows, says John T. Alfonsi, CPA, ABV, CFF, CFE, CVA, managing director of Cendrowski Selecky PC.

“As an example, if a transaction can be structured multiple ways, the alternative that produces the least amount of taxes may not be the most advantageous with respect to after-tax cash flow,” says Alfonsi. “You should be willing to incur a greater amount of taxes if it will ultimately result in greater after-tax cash flow.”

Smart Business spoke with Alfonsi about tax planning, how to perform it properly and what challenges come along with it.

Are there certain tax planning strategies that always apply?

Nothing fits every scenario. There are certain general tax planning strategies, such as deferring the recognition of income and accelerating deductions, but even these have exceptions. When you know, or are fairly certain, that tax rates will increase, the opposite may be more advantageous — accelerating income and deferring transactions.

For example, absent any legislation passing in the next six months, the top marginal income tax rate on ordinary income for individuals is increasing from 35 percent in 2010 to 39.6 percent in 2011. Similarly, the maximum capital gains rate is increasing from 15 percent in 2010 to 20 percent in 2011. Accordingly, taxpayers may want to consider taking advantage of the lower rates in 2010.

What should be considered when it comes to tax planning?

Timing of the transaction is critical to the analysis. Accelerating a deduction from 2011 to 2010 may make sense, given the rate differential, if you would otherwise have incurred that expense in early 2011. The time value of the money used for that expense needs to be considered; it may not make sense on a present value basis to accelerate that deduction if you would have otherwise incurred it in late 2011.

Stated alternatively, the lost time value of the money used to fund the expense may more than offset the incremental tax savings realized with respect to the rate differential. Each transaction and alternative needs to be analyzed, again, with a goal of maximizing the client’s present value of after-tax cash flow.

How does the alternative minimum tax (AMT) affect tax planning for individuals?

The AMT is essentially a flat rate tax based on a separately computed tax base. It does not allow certain deductions such as state taxes, miscellaneous itemized deductions and personal exemptions. In addition, there are items, referred to as preference items, that are added to regular taxable income for purposes of the AMT. Tax planning should consider whether the client is, or will be, subject to the AMT.

Despite the regular tax rate differential for 2010 and 2011, if a taxpayer will be subject to the AMT for both years (essentially no change in tax rates), there may be no benefit in accelerating the recognition of income; accelerating the income may decrease the present value of the after-tax cash flow. Care also needs to be taken with respect to deductions, as shifting deductions between tax years may cause the taxpayer to be subject to the AMT, thereby negating any anticipated tax savings.

What challenges can the IRS make with respect to tax planning strategies?

There are few ways the IRS can challenge the tax consequences of a transaction. With respect to the deferral of income, there is the concept of ‘constructive receipt,’ which means that the income was available to the taxpayer earlier than when it was actually received. The income would be taxable, therefore, when made available to the taxpayer, or constructively received, rather than when actually received.

The IRS may also challenge a result based on the business purpose doctrine. The business purpose doctrine provides that a transaction should not be respected unless it was intended to achieve a genuine business purpose, not just the avoidance of tax.

The substance over form doctrine means that the IRS can look through the legal formalities to determine the economic substance, if any, of a transaction. If the substance differs from the form, the transaction will be recast to reflect its economic realities. Finally, there is the step transaction doctrine, which allows the IRS to collapse a series of interdependent transactions into a single transaction to determine the entire tax consequences of the arrangement.

Does tax planning only apply to federal taxes?

Absolutely not. Tax advisers need to consider the impact, if any, of state taxes in the planning process. Many times, there are opportunities to shift the recognition of income from a higher tax rate jurisdiction to a lower tax rate jurisdiction. Other times, maybe because of the availability of federal tax attributes such as net operating losses, the state tax exposure is greater than the federal tax exposure.

Again, taxes are a transaction cost that requires the tax adviser to identify and quantify all such costs — federal and state income taxes, property taxes, capital stock taxes, franchise taxes, etc.

JOHN T. ALFONSI, CPA, ABV, CFF, CFE, CVA, is a managing director of Cendrowski Selecky PC. Reach him at (866) 717-1607 or jta@cendsel.com, or visit www.cendsel.com for more information.

With increased regulatory demands and constant threats of fraud and misconduct, businesses have to watch their backs, especially when it comes to finances.

And in many cases, having a traditional accountant is not enough. Instead, you may need someone who has not only accounting skills, but investigative and analytical skills, as well.

In other words, you need a forensic accountant.

Forensic accounting enables business owners to get control over possible financial fraud and mismanagement and, more importantly, to deter it before it occurs. Forensic accountants can help save companies time, money and effort as they investigate fraud and misconduct, design effective antifraud controls, help mitigate the risks of future lawsuits, and deter fraud and misconduct.

“Forensic accounting engagements generally occur as a result of a legal action that requires investigation and analysis,” says James P. Martin, CMA, CIA, CFE, a managing director at Cendrowski Corporate Advisors LLC. “For example, forensic accounting techniques might be used to gather evidence and analyze data pertaining to a fraud. They might also be used to quantify economic damages in instances where value and/or profits might be lost, or in cases of business valuations to uncover unreported income or expenses.”

However, forensic accounting techniques can also be applied proactively to deter fraud.

Smart Business spoke with Martin about forensic accounting and how it can benefit a company, its owners and managers.

How does a forensic accounting engagement differ from an audit?

Forensic accounting engagements are different from audits on many levels. First and foremost, these engagements are nonrecurring and are only conducted at the request of a firm’s management. Audits, conversely, are recurring activities and are conducted on a periodic basis.

Forensic accounting engagements are targeted assessments of specific areas of a business; they are not general assessments of the business as a whole or its financial statements.

The methodology employed in an audit is also quite different from that used in forensic accounting engagements. Audits are conducted primarily by examining financial data, whereas forensic accounting analyses are conducted by examining a wide variety of documents and interviews.

Lastly, the goals of forensic accounting engagements are yet again very different from audits, where the goal of the latter is to detect the presence of material misstatements, irrespective of their cause. Audit activities are in no way designed to help an organization deter fraud, though they may detect such activity.

Because many frauds begin on a small scale, they may go undetected by auditors if the size of the fraud is below the auditor’s threshold for materiality. Moreover, even if the magnitude of a fraud is greater than the auditor’s threshold for materiality, a fraud may remain undetected by the auditor if it is well concealed.

However, forensic accounting engagements can be specifically tailored to deter fraud and potentially prevent it.

Can forensic accounting techniques be applied proactively as opposed to retroactively?

Forensic accounting techniques can also be used on a proactive basis in many instances, including the deterrence of fraud. More specifically, forensic accountants can proactively analyze an organization’s internal control process to determine areas of weakness and help the organization swiftly remediate these issues.

You mentioned fraud deterrence as an area of expertise for forensic accountants. How can organizations use that expertise to help deter fraud?

Fraud deterrence focuses on removing one or more of the three causal factors of fraud: motive, opportunity and rationalization. Only when each of these factors is present can a fraud occur.

The opportunity for fraud is frequently the prime target of fraud deterrence engagements, as this causal factor is generally under direct control of the organization itself. Conversely, motive and rationalization are generally dependent upon personal situations over which the organization may have little control or effect. If someone has made up their mind to commit a fraud, it will be hard to stop this activity without removal of the opportunity.

How can forensic accounting techniques be used in cases of business valuations?

Valuation professionals who are trained in forensic accounting possess many beneficial skills. They may have significant experience in data mining and analysis, affording them the ability to supplement typical valuation techniques with information uncovered as a result of forensic accounting activities.

This additional information could result in a markedly different valuation from that which might have been calculated without the use of forensic accounting techniques, as valuations are extremely sensitive to underlying assumptions.

James P. Martin, CMA, CIA, CFE, is a managing director for Cendrowski Corporate Advisors. Reach him at (866) 717-1607 or jpm@cendsel.com, or visit www.cca-advisors.com for more information.