Jayne Gest

A “preference action” is a lawsuit by or on behalf of a debtor seeking to recover certain payments made by the debtor prior to filing for bankruptcy. Preference actions are unfamiliar to many business owners and often seem illogical and unfair.

“Clients often receive a letter demanding the return of a payment that the debtor made to them before filing for bankruptcy. They call and say, ‘What does this mean? Do I have to return this money? We sold them products and they paid us, are they entitled to get their money back?’” says Stephen C. Goldblum, member at Semanoff Ormsby Greenberg & Torchia, LLC. “The answer is yes, you may have to return the money — unless the payment falls within one of the statutory defenses.”

Smart Business spoke with Goldblum about how preferences work.

What should you know about preferences?

Typically, a preference action is often preceded by a ‘demand letter’ from the debtor demanding the return of payments made in the 90 days prior to the debtor filing for bankruptcy. This seems patently unfair to the recipient of the payment. The business provided products or services and was paid for them, and it seems unjust to have to return the money, often many months after the payment was received. The policy behind the bankruptcy code, however, takes a broader view. The policy is to prevent debtors from treating creditors unequally and paying preferred creditors before filing bankruptcy, and to prevent aggressive collection activities that could actually force a debtor into bankruptcy. Such policies have been determined to be of greater importance than the rights of an individual creditor.

There are four elements needed to prove a preferential payment; if the payment was:

  • For an antecedent (previously incurred) debt.

  • Made while the debtor was insolvent.

  • Made to a non-insider creditor in the 90 days prior to the bankruptcy filing.

  • Allows the creditor to receive more than it would have if the payment had not been made and the claim paid through the bankruptcy proceeding.

Where do many businesses make mistakes regarding preferences?

A business’ biggest mistake is to ignore a demand letter received by or on behalf of a debtor. Often the debtor is willing to settle the preference claim for a significantly reduced amount before a lawsuit is filed. A business that ignores a demand letter or fails to timely retain counsel familiar with bankruptcy law often misses its best opportunity for a favorable resolution.

Do you receive the repayment back?

Usually not. The preferential payments recovered by the debtor are added to the bankruptcy estate. To the extent there are funds available, secured, priority and certain other creditors are paid first. To the extent there are funds remaining, they are distributed to the unsecured creditors, which often results in little or no payment.

What are the defenses when a payment is alleged to be preferential?

The three primary defenses to an alleged preferential payment are the following:

  • New value defense, which provides an offset against the preferential payment if the creditor subsequently gives new value to the debtor after the alleged preferential transfer.

  • Ordinary course of business defense, which protects transfers consistent with the debtor and creditor’s prior business history.

  • Contemporaneous exchange defense, which includes certain concurrent transactions such as a cash-on-delivery.

How are insider creditors treated differently?

With insiders — corporate officers or directors, relatives and related entities — a debtor may recover payments for up to 12 months prior to the bankruptcy.

How can you protect your company? 

It’s difficult for a company to pre-emptively protect itself from a payment later being deemed preferential. When you receive a letter demanding return of an alleged preferential payment, contact an attorney experienced with creditors’ rights. He or she will analyze the potential defenses and prepare a response to the letter. Often, a timely, well-reasoned response to a demand for the return of a preferential payment leads to a prompt and cost-effective resolution.

Stephen C. Goldblum is a member at Semanoff Ormsby Greenberg & Torchia, LLC. Reach him at (215) 887-5961 or sgoldblum@sogtlaw.com.

 

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

Many times landlords and tenants don’t realize that their commercial lease is unclear, contradictory or out of date until it comes time to resolve a claim, whether it’s a case of liability or property damage.

The payout is then delayed as the insurance companies review the entire lease to try and determine responsibility, liability and how the policy should respond.

“The real world is this — when the landlord and tenants go to renew an option, they just want to renew it. They don’t want to look at anything else because they don’t want to open up opportunities for negotiation that could be detrimental to either party,” says Phil Coyne, vice president at ECBM.

Smart Business spoke with Coyne about how knowing what’s in your lease and fixing problems now will save you a headache later.

What is one of the biggest risk exposures involved with a commercial lease? 

You can avoid significant risk by making sure the lease language doesn’t expand, broaden or increase the liability and exposure to the point where your insurance coverage either doesn’t apply or would be limited. Therefore, each party — tenant and landlord — needs to have an understanding of the intent of the lease and its language.

Also remember that it’s not only the insurance provisions that have an effect on the outcome of a claim, but also definitions, maintenance, landlord/tenant obligations, use of premise and indemnity provisions. The insurance section alone only outlines limits and coverage; it’s the other sections of the lease that outline responsibility and ownership.

If two insurance companies review the same lease, and there are questions, it delays the claim process. For example, who is responsible for or owns the improvements and betterments to the space? Is that the responsibility of the tenant or the landlord?

How can tenants and landlords best mitigate risk when drafting and negotiating commercial lease provisions?

By understanding the intent of the lease and its language, the tenant and landlord can mitigate a potential problem prior to a loss and have an understanding of how their policies will respond.

Therefore, both insurance brokers should have an opportunity to review the entire lease during negotiations. He or she can explain what each party is accepting and not accepting, and how your policy will respond in the event there is a claim.

Some important areas for discussion are:

  • Who is responsible for what, such as common area, tenant space,  maintenance and repairs.

  • Who is responsible to insure these items?

The commonly discussed issues in the insurance section are limits, coverage, indemnity provisions and specific wording, but policies respond to the entire lease and its language in sections other than the insurance section.

How should a lease be updated when up for renewal?

Many times lease options are renewed without re-examining the entire lease’s language. There could be simple items such as a name change or an increase in the square footage, other times it can be a change in use and occupancy and therefore changes in various other sections need to be amended and addressed.

Although the landlord and tenant likely just want to sign a quick renewal, it is important that all parts of the lease are carefully reviewed and understood. This will ensure each side is in agreement on the terms prior to a loss instead of after a loss, as the latter could lead to delays or restrictions in coverage.

Phil Coyne is a vice president at ECBM. Reach him at (610) 668-7100 or pcoyne@ecbm.com.

 

BLOG: For more information about risk management,visit ECBM's blog.

 

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The recent financial downturn and continuing economic global crises have caused some users of financial statements — investors, lenders or financial analysts — to question if auditors’ reports could tell more of the story and alert users earlier to looming problems.

“Everybody wants to minimize investment risk. They figure the more that they know, the better equipped they are going to be to make decisions,” says Carolyn H. McNerney, CPA, director of Assurance Services at SS&G.

Now, standard setting agencies are considering what disclosures need to be added to auditors’ reports.

Smart Business spoke with McNerney about expectations for revised auditor reporting.

What are the responsibilities of management versus the auditor for financial statements?

Management is responsible for preparing the financial statements, including required footnote disclosures in conformity with generally accepted accounting principles (GAAP) or other reporting framework. The auditors’ responsibility is to express an opinion on the financial statements based on their audit, which involves performing tests and procedures to obtain evidence about the amounts and disclosures in the statements.

Many, if not most, auditors would argue that disclosure should come from management and an auditor’s responsibility is to ensure the ‘numbers’ are fairly stated. Most also acknowledge that the complexity of required disclosures combined with the multitude of new financial instruments, including derivatives, has increasingly complicated reporting. This complexity is a primary driver in the call for more information in auditors’ reports.

What new disclosures are being discussed? 

New disclosures are currently being addressed by the International Auditing and Assurance Standards Board (IAASB) as well as by the Public Company Accounting Oversight Board (PCAOB), which sets the U.S. professional reporting standards for auditors of public companies.

Proposed additions include discussion of matters of audit significance that would be in a separate auditors’ commentary or discussion and analysis section of the auditors’ report. The focus would be on key audit areas, which typically require the use of significant management judgment in determining the amounts reported and auditor judgment for the audit approach.

Will the benefits of expanded disclosure be offset by a lack of comparability?

Standard setters are still deciding what should be disclosed and in how much detail. There is a concern that many financial statement users will be confused by detailed disclosures of audit risk and auditors’ responses thereto. A ‘clean’ auditor’s opinion often takes only one page. Some proposed new example reports go on for many pages.

The question is: Will users be able to interpret and compare auditors’ reports that contain a varying amount of disclosures and are significantly different in length? Sophisticated financial analysts may find this additional information useful, others may find it confusing or misinterpret what the disclosure is intended to convey.

Does the additional cost of potential new disclosures outweigh the benefit? 

Additional disclosures in the auditors’ reports will require more time of both auditors and management, resulting in additional costs. In the U.S., expanded disclosures are currently being proposed only for public companies.

In the private company world, financial statement users have access to management and, perhaps, even the auditor, should they have questions. For this reason, additional disclosures for private companies are not currently being proposed.

What should owners look for in the future?

It seems very likely that there will be some kind of revised, expanded auditor reporting standards for public companies over the next several years. The IAASB has publicly discussed a desired timetable for the issuance of new reporting standards while the PCAOB has not. Certainly, both of these organizations are keeping a watchful eye on each other’s activities and proposals with respect to auditor reporting. However, even private business owners invest in the public company marketplace and receive annual reports of investments.

Carolyn H. McNerney, CPA, is director, Assurance Services, at SS&G. Reach her at (330) 668-9696 or CMcNerney@SSandG.com.

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Business owners have exposure to financial fraud for all payment methods.

In 2011, 66 percent of businesses faced attempted fraud, according to a survey by the Association for Financial Professionals. Although three-quarters didn’t have losses, the remainder had an average loss of $19,200, which can be devastating to small or middle market companies.

“This tells us that business clients in particular need to take measures to prevent fraud — whether it’s internal or external,” says Kacy Karl Owsley, senior vice president and treasury management sales manager at Cadence Bank. “Businesses should work with a financial institution that can offer solutions and best practice recommendations to help them mitigate theft.”

Smart Business spoke with Owsley about fraud risks and preventative measures businesses can take to avoid being a victim.

Describe today’s fraud landscape?

Sophisticated database technology, online information exchange and mobile access devices make payment fraud a global issue that can be completed anywhere. Checks, despite their declining use, continue to be the leading target for paper and electronic fraud, primarily because each contains relevant financial information — account and routing numbers.

A business only has 24 hours to dispute an electronic transaction after the debit hits its account or funds might not be recovered. Fraud often is directed at business accounts for the larger available balances and transaction volume.

What solutions can banks provide?

Among the products banks offer to protect accounts from electronic or paper fraud is business online banking, which allows accounts to be viewed daily to ensure only intended debit and credit transactions are made.

Positive pay operates as a fraud prevention system, allowing businesses to export check registers so the bank can match checks through an item-processing network or at the teller line. If there’s a problem, the bank alerts the business, usually via mobile device, and the employer decides to pay or return the item.

Automated Clearing House (ACH) positive pay or block works much the same way to prevent electronic fraud. Business owners can set up approved vendors that are automatically paid, as well as maximum dollar filters. Other transactions generate an alert, so employers can make a quick decision within the 24-hour window.

Businesses can utilize credit cards to eliminate sharing bank account information. Cards have cash rebates and point systems, and allow for integration to post to an accounting system.

Through lockbox services, businesses can accept payments directly at their bank rather than at their business location. Banks can manage payment processing, data entry and deposit preparation, and help prevent internal fraud by segregating these duties.

Finally, with account reconciliation services, banks assist in payment reconciliation to ensure timeliness and swift detection of suspicious activity.

What internal controls or preventative measures should a business implement?

A bank’s treasury management team can consult with clients on financial transaction best practices. Some suggestions are:

• Separation of duties for those creating versus signing checks.

• Having a dual control process for vendor acceptance or setup, as well as any financial transactions.

• Ensuring financial transactions are done on a dedicated computer.

• Downloading a software application like Trusteer Rapport™, which many financial institutions offer free of charge. It’s an additional layer of malware or anti-virus monitoring that notifies the bank and business when a PC downloads a virus. And the bank can instantly disable the user login.

• Knowing your employees by doing background checks, and pursuing any unusual behaviors or transactions.

• Setting up tight policies around email and Internet usage. Also, keeping anti-virus software up to date.

• Hiring an external firm to run a mock attack to test anti-fraud measures to ensure they cannot easily be broken.

• Conducting an annual audit, review or compilation.

Kacy Karl Owsley is a senior vice president and treasury management sales manager at Cadence Bank. Reach her at (713) 871-3917 or kacy.owsley@cadencebank.com

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An effective safety program gives your company a competitive advantage over one with careless operations. Safety awareness lowers your workers’ compensation rates through premium rebates and discounts, and better rates from less frequent and less severe claims.

“I can walk into a manufacturing plant and sense whether the company has a strong focus on their operations and safety. And, nine out of 10 times, I’m correct,” says Richard B. Hite, CEO of SeibertKeck Insurance Agency.

Smart Business spoke with Hite about how safety programs and a safety culture factor into decreasing your workers’ compensation premiums.

How can you use safety to take advantage of workers’ compensation rebates and discounts?

As one of four states that don’t allow employers to buy workers’ compensation from private carriers, Ohio and its Bureau of Workers' Compensation (BWC) have a number safety programs (www.OhioBWC.com/employer/programs/safety). The three fundamental ways to get credits to your basic rates, depending on whether you have a basic or advanced safety program, are the:

  • Drug-free safety program, a premium discount of 4 to 7 percent for implementing a drug-free program that promotes occupational safety and addresses the use and misuse of alcohol and drugs in the workplace.

  • Safety council rebate program, a 2 percent rebate for active participation in a safety council, as well as another 2 percent possible based on the frequency and severity of your workers’ compensation claims.

  • Destination excellence program, up to 3 percent refunded based on industry-specific safety discounts.

Additionally, based on your company’s total losses and their severity, you get experience modification — a credit, or debit if you’ve had claims — to your base rates. The BWC also administers workplace wellness grants, which by establishing a more healthy and aware workforce can  reduce the frequency and severity of claims in the future.

Your property and casualty commercial insurance carrier is another source for safety assistance to help reduce claims. The national carriers already provide out-of-state workers’ compensation, so they have programs and information that your company may be able to take advantage of as a client.

How can you ensure employees actually follow your safety practices?

Many business owners examine their prior premiums and rates to see the total savings from BWC credits, rebates and discounts, and then share half with employees as a safety bonus. Employees know if they stay safe the employer will, for example, hand out gift cards. Also, if a department has no workers’ compensation claims for a certain quarter, the boss could buy everyone pizza.

Another incentive is posting accomplishments — the sign that says ‘We’ve had X consecutive days of no workers’ compensation losses.’ You might not think it works, but employees don’t want to be the one person to mess up, so they are more aware and take extra time.

Your safety committee should be helping with education and awareness. First, you train the trainers at monthly meetings, such as bringing in a loss control engineer or practical exercises like the proper way to lift a 100-pound object. Then, the committee members go down to the specific departments, which already should have safety resources for individual jobs.

How else can you institute a safety culture?

The written safety plan needs to be reviewed by employees, so make employees sign a statement that they read it. Post safety rules in relevant places — the BWC can provide posters. When new employees go through safety training, make sure you’re refreshing the memory of existing employees. Keep your job analyses current and match the right employees to the right tasks. An improperly trained employee who’s lifting and bending all day is an accident waiting to happen.

It’s only after you establish a strong safety culture to keep frequency and severity of claims down that you can think about the next level where you can get in a group or a retrospective rating program to earn your own rates.

Richard B. Hite is the CEO of the SeibertKeck Insurance Agency. Reach him at (330) 865-6573 or rhite@seibertkeck.com.

 

Website: To keep up with the latest insurance news and how your company could be impacted, sign up to receive our newsletter at www.seibertkeck.com.

 

Insights Business Insurance is brought to you by SeibertKeck

 

An effective safety program gives your company a competitive advantage over one with careless operations. Safety awareness lowers your workers’ compensation rates through premium rebates and discounts, and better rates from less frequent and less severe claims.

“I can walk into a manufacturing plant and sense whether the company has a strong  focus on their operations and safety. And, nine out of 10 times, I’m correct,” says Cliff Baseler, vice president at Best Hoovler Insurance Services Inc., member of the SeibertKeck Group.

Smart Business spoke with Baseler about how safety programs and a safety culture factor into decreasing your workers’ compensation premiums.

How can you use safety to take advantage of workers’ compensation rebates and discounts?

As one of four states that don’t allow employers to buy workers’ compensation from private carriers, Ohio and its Bureau of Workers' Compensation (BWC) have a number safety programs (www.OhioBWC.com/employer/programs/safety). The three fundamental ways to get credits to your basic rates, depending on whether you have a basic or advanced safety program, are the:

  • Drug-free safety program, a premium discount of 4 to 7 percent for implementing a program that promotes occupational safety and addresses the use and misuse of alcohol and drugs in the workplace.

  • Safety council rebate program, a 2 percent rebate for active participation in a safety council, as well as another 2 percent possible based on the frequency and severity of your workers’ compensation claims.

  • Destination excellence program, up to 3 percent refunded based on industry-specific safety discounts.

Additionally, based on your company’s total losses and their severity, you get experience modification — a credit, or debit if you’ve had claims — to your base rates. The BWC also administers workplace wellness grants, which by establishing a more healthy and aware workforce can  reduce the frequency and severity of claims in the future.

Your property and casualty commercial insurance carrier is another source for safety assistance to help reduce claims. The national carriers already provide out-of-state workers’ compensation, so they have programs and information that your company may be able to take advantage of as a client.

How can you ensure employees actually follow your safety practices?

Many business owners examine their prior premiums and rates to see the total savings from BWC credits, rebates and discounts, and then share half with employees as a safety bonus. Employees know if they stay safe the employer will, for example, hand out gift cards. Also, if a department has no workers’ compensation claims for a certain quarter, the boss could buy everyone pizza.

Another incentive is posting accomplishments — the sign that says ‘We’ve had X consecutive days of no workers’ compensation losses.’ You might not think it works, but employees don’t want to be the one person to mess up, so they are more aware and take extra time.

Your safety committee should be helping with education and awareness. First, you train the trainers at monthly meetings, such as bringing in a loss control engineer or practical exercises like the proper way to lift a 100-pound object. Then, the committee members go down to the specific departments, which already should have safety resources for individual jobs.

How else can you institute a safety culture?

The written safety plan needs to be reviewed by employees, so make employees sign a statement that they read it. Post safety rules in relevant places — the BWC can provide posters. When new employees go through safety training, make sure you’re refreshing the memory of existing employees. Keep your job analyses current and match the right employees to the right tasks. An improperly trained employee who’s lifting and bending all day is an accident waiting to happen.

It’s only after you establish a strong safety culture to keep frequency and severity of claims down that you can think about the next level where you can get in a group or a retrospective rating program to earn your own rates.

Cliff Baseler is a vice president at Best Hoovler Insurance Services Inc., member of the SeibertKeck Group. Reach him at (614) 246-7475 or cbaseler@bhmins.com.

 

Website: To keep up with the latest insurance news and how your company could be impacted, sign up to receive our newsletter at www.seibertkeck.com.

 

Insights Business Insurance is brought to you by SeibertKeck

 

When office equipment goes down or doesn’t work properly, it can disrupt the entire business. And as the industry consolidates functions into one device, it’s critical to have the correct equipment that meets your business’s needs.

“It truly is a lifeline in an office,” says Edward Kromar, director of service at Blue Technologies. “If it’s a small office, it can almost stop the processes internally, as opposed to 20 years go when it was just one facet of many. Understanding your vendor’s service protocol is absolutely vital.”

Smart Business spoke with Kromar about how to maximize your office equipment.

What should business owners know before investing in office equipment?

Take time to understand your business and processes. Knowing the volume you use ensures the equipment is big enough. But if printing is most important, you may need a multifunction device that allows you to categorize your priorities in the workflow, so all printing comes before copying or faxing.

If the function is mission critical, you may want a second unit. This is mechanical equipment — failures are going to happen — so you may need backup equipment and data storage. If scanning is imperative but you have an all-in-one device, then you need to consider having another unit to provide back-up scanning. Look for an alternative that doesn’t break the bank but gives the necessary insurance, which could be a desktop device. In trying to understand your needs and priorities, develop and use your relationship with your office technology salesperson, which also helps you get the right product(s).

How does the technology life cycle work?

Technology is changing monthly, so a best practice is having the flexibility to move into different products with your vendor. Look for a product line with options and versatility as well as a history of improvements. Not only are your business needs changing, but a feature that wasn’t out six months ago could add efficiency.

While there’s no rule about how often equipment needs to be upgraded, make sure the technology still meets your needs. The faster your business is growing, the faster you’ll need to update. And, if you come across a broken process, don’t forget to consider that your office hardware could be part of the solution.

What’s problematic about switching to digital phones?

Digital phone lines are very practical for businesses that want to save money. Unfortunately, fax technology has not kept up with digital phone technology, so they don’t fit reliability together, and the industry is not spending research and development funds on merging these two. So, if you are changing phone systems and your organization has a high demand for faxing, you need to keep an analog phone line for your immediate needs and begin converting your clients to email communication.

What’s important to know about color?

Color has helped businesses present, at a more affordable cost, their marketing message to customers. But some business owners have misconceptions about their device’s color and the difference between business and production color. Production color, which is often outsourced to print production facilities, handles high-end color, where a red will always print the exact same shade. Business color is an acceptable quality that can be used internally and sometimes for outside marketing pieces. You can buy devices of either type, but there’s a cost difference. With help from your salesperson, you can discover what color needs to be used and when, including whether the volume justifies the cost of bringing it in-house.

How can your company maximize use?

First, your equipment salesperson should understand your IT support. Additional services and training may be needed to help make the transition seamless. An established equipment dealer can even provide support for more than just your hardware needs, the dealer might also provide various network support before and after installation.

You also need to fully understand the capabilities of the equipment you’ve purchased and how it fits with your business. If you don’t know what your equipment can do, find out. Also, as your business changes, you could take advantage of a feature you never thought you would.

Edward Kromar is the director of service at Blue Technologies. Reach him at (216) 271-4800 or ekromar@BTOhio.com.

 

Blog: For useful tips on improving office efficiencies, visit our blog at www.btohio.com/news-resources.

 

Insights Technology is brought to you by Blue Technologies

 

Retirement plan sponsors, now more than ever, need to be diligent in carrying out their fiduciary responsibilities. The Department of Labor, IRS and other agencies have eyes on the industry, especially with new retirement planning fee disclosures and a soon to be proposed expanded definition of “fiduciary.”

“The business owner who says, ‘I’m hiring these service providers to run the plan and I don’t have to worry about it’ is nonetheless ultimately responsible if there are problems,” says Paula M. Lewis, Manager, Client and Advisor Experience, at Tegrit Group.

Smart Business spoke with Lewis about what business changes could signal that retirement plan adjustments are necessary.

Who do plan sponsors deal with?

Plan sponsor decision-makers depend on industry experts for assistance in managing their roles and responsibilities. Although some parties may serve multiple roles, the sponsor may engage an accountant, an investment advisor, an actuary, an ERISA attorney and a third-party administrator (TPA), with each having important and distinctive functions impacting the plan’s operation.

Despite having all these providers in place, the ultimate responsibility for the plan still lies with the plan sponsor. Employers sometimes put in a retirement plan and just let it ride, but then no one is ensuring the plan grows and changes with the company and its employees.

In this dynamic environment, it’s crucial that all parties communicate. It’s best if you know that your service providers work well together, which lessens the risk of something being missed, and the best course of action is being charted.

What changes need to be communicated?

Usually, over time there are changes to the employee demographics, financial standing and even the goals of a company. The company’s retirement plan should also change over time to reflect these changes in employees, finances and objectives. Certain changes always should be communicated to plan service providers, including:

  • Changes in ownership.

  • Acquisition or divestiture of another company.

  • Family members becoming employees of the firm.

  • Major compensation changes of key personnel.

  • Retirement plan goal changes of key personnel.

It’s confusing to know who to tell what, but generally, the investment advisor and TPA should be made aware of all of these changes, as they may impact fiduciary considerations and compliance. The investment advisor, along with the TPA, should be able to analyze any changes, determine which parties need to be informed, and make any plan changes to avoid any problems or penalties and ensure the plan is designed to maximize the benefits and goals of the company.

What can happen if changes aren’t reflected in the plan?

There are various penalties that are imposed if a plan falls out of compliance because of changes at the plan sponsor level. Late amendments and failed compliance testing are but two. For instance, if the spouse of the owner of one company purchases a separate company, the two companies can be considered a ‘control group,’ and for plan purposes are ‘one.’ Upon an IRS audit, the less generous company may have to increase its plan contributions, which could be an expensive correction avoidable with advance planning and appropriate plan designs.

When acquiring a company with a pension plan, you acquire its liability, especially if it’s underfunded — unless the acquisition agreements are carefully worded. Without advance planning, closing a division could produce a costly surprise as it could be considered a partial plan termination, requiring that the terminated employees be 100 percent vested.

Another area that can cause compliance issues is how certain family members of owners becoming an employee impacts the retirement plan. According to the IRS, he or she is considered highly compensated regardless of their salary. That could cause a plan to require corrective contributions. It is crucial to keep the lines of communication open with your advisors and TPA.

Paula M. Lewis, QPA, QKA, manager, Client and Advisor Experience, at Tegrit Group. Reach her at (330) 983-0485 or paula.lewis@tegritgroup.com.

 

Website: Visit Tegrit’s Advisor Resource Center at www.tegritgroup.com/arc for additional retirement planning tips.

 

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Until the middle of 2011, northeast Ohio was a tenant’s market. However, with real estate growth, free rent incentives and large price drops going away, the market is starting to lean more toward landlords, says Eliot Kijewski, SIOR, senior vice president at CRESCO Real Estate.

“I can’t tell you how many times we get a phone call saying, ‘I need to be in something in 30 to 60 days,’” Kijewski says. “That’s not enough time when you’ve still got to negotiate a lease and the landlord generally has work to do in the space.

“You need to be in front of it. You can make your best deal that way,” he says.

Smart Business spoke with Kijewski about how business owners can maximize the value of their renewal or relocation.

What should you consider when deciding whether to renew your lease or relocate?

First, reread your lease to find out what your timing should be. You need to know the option date, if one exists, in your existing lease. It’s most likely six months, but in some cases it could be 60 or 120 days. For instance, if you’re coming to the end of a five-year lease and you have to notify the landlord whether you’re going to stay six months from the lease-end date, you’d better see what else is out there — check out pricing and deals, the size and efficiency of available space, etc. You want to be in the market at least four months ahead of your option date.

Ninety percent of landlords are still going to do whatever they can to keep a tenant, such as throw in tenant improvements or be flexible on the rate. The difference is that, as the market tightens up, landlords are starting to look at the option date because they may have been giving deals away a few years ago, but now they could get another tenant in for more money.

How should you weigh your existing space against the available space?

With the help of your broker, there are a number of questions to ask that take into account your long-term goals. Is your existing space too big, too small, not heated properly or not meeting your technology needs? Did your business model change? Are you comfortable here?

It’s imperative to actually check out the market. For example, if you move one city over, your taxes could be dramatically less.

A tenant representative can generate data to help you feel confident about staying or leaving by looking at employees, governmental incentives, etc. Employees really care about where their workplace is located; so if you move to the best deal, you might lose employees.

How can business owners account for the costs?

Remember that it costs a lot of money to move — no matter what business it is. You have to pay a mover, or do it yourself, which doesn’t allow you to do your work. Then, you’ll need new stationary printed, websites and phones updated, etc. Based on what type of tenant you are — industrial, office or retail — your broker can assist with estimating these types of costs.

At the same time, it costs the landlord as well, which gives tenants leverage. If the space goes ‘dark’ or vacant, the landlord has to prepare the space with cleaning and/or renovations, promote the space and hire a broker.

What’s important to know about the negotiations?

A lease is a huge commitment. For example, if you’re coming to the end of your term, you may have a clause that says you have to renew for a certain amount of time. But, if you’re uncomfortable, don’t let your company become a captive tenant. This can be negotiated with your landlord with the help of your broker.

Your broker is critical to informing you of the various circumstances with the existing landlord and the surrounding market. He or she also can help with timing the negotiations correctly. You want to start that conversation with the landlord close to the option date, but not close enough that it jeopardizes your leverage.

Eliot Kijewski, SIOR, is senior vice president at CRESCO Real Estate. Reach him at (216) 525-1487 or ekijewski@crescorealestate.com.

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Often management is in day-to-day operations mode, dealing with crisis after crisis. No one steps back, looks at the big picture and says, “This is my biggest asset and investment, so I need to increase the value.” However, especially if you’re planning to sell or pass your company to the next generation, you need to evaluate the drivers for creating value in your organization.

“The real value drivers that most people think about are growth and profitability. And those truly are important factors when you talk about a driver for value, but really the one area that companies will often overlook is the whole notion of risk — if you’re able to reduce or eliminate risk, you’re increasing value,” says Lewis Baum, director at SS&G Parkland Consulting.

Smart Business spoke with Baum about risk assessment and a strategic plan that will generate business value.

What are some value drivers?

Although value is driven by growth and profitability, a third attribute, which is often overlooked, is risk. The riskier something is, from the marketplace perspective, there’s less value attributed to it. All companies face risk, so it’s good to go through a valuation strategy and identify the various drivers affecting the business. Some factors are:

• Macroeconomic, such as interest rates, inflation, construction trends, etc.

• Microeconomic, such as supply and demand, how individuals make decisions and their impact, and what’s happening with competitors.

• The barriers to entry in your industry that impact the competition level.

• Substitutions, as in what other products or services could threaten your product or service.

• Suppliers and customers who have bargaining power and could affect price and quality.

• Technological, social and demographic changes.

It is also important to understand what the value drivers are for the industry. Certain industries measure value in different ways — a certain multiple or perhaps the number of subscribers might drive it. Intellectual property and trade secrets are becoming a larger component of value. Efforts should be made to document and safeguard such assets.

Other ways to reduce risk, and thus increase value, are ensuring your financials are in good shape and that you have well-documented systems in place.

How do you set up your strategic plan?

Once you’ve identified trends, often with the help of an outside service, you can set a course as part of an overall strategic plan. As part of the plan, management will essentially have a list of things to watch for and goals to meet, which can be broken down into smaller steps. Then, you’d need to set up a mechanism to monitor your progress. It’s something that should be revisited often and should be considered a ‘living and breathing’ plan. You need to be able to incorporate unforeseen changes in order for you to achieve your goal(s).

The ideal time for this kind of planning is when you have enough time to implement changes and create a track record. You want to make your company as effective, efficient and valuable as you can before leaving. Otherwise, your buyer will likely take the same steps to get that added value. Even if you’re not planning to sell, risk assessment and strategic planning may help assess which product lines are more valuable, where growth is really coming from and how to help your business in the future.

Do business owners need outside help?

Yes. Outside consultants can take an active role, or management can utilize the consultant as a coach to help direct the assessment. It’s difficult for business owners to see some of the economic factors and value drivers with fresh eyes. However, owners and management have valuable information as far as identifying their competitors, marketplace trends, etc.

How important are regular employees?

Ultimately, the entire organization needs to accept a value-driven strategic plan and understand their role(s). Employees have valuable insight and are often knowledgeable about inefficiencies and waste. Their involvement allows for ‘buy-in’ and can reduce turnover and frustration. Employees should have a voice in the process.

Lewis Baum, CPA/ABV/CFF, CVA, CFE, is director at SS&G Parkland Consulting. Reach him at (440) 394-6150 or LBaum@SSandG.com.

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