Northern California (1069)

If your business has benefited from California enterprise zone credits, the next few months might shock your system.

AB 93, signed into law by Governor Jerry Brown on June 12, 2013, effectively eliminates the enterprise zone program. In its place, three new tax incentives will take effect beginning Jan. 1, 2014. Will these new incentives bring the same value to the California economy? Will your business lose benefits that it has come to rely upon, or will it find new benefits?

Smart Business spoke with Marcus Halluin, CPA, tax manager at Sensiba San Filippo LLP, to find out more about these incentives, what’s coming in 2014 and what businesses can expect moving forward.

What was the enterprise zone program and what did it do for businesses?

The enterprise zone program was a long-standing state incentive designed to encourage specific business activities in designated ‘economically depressed’ areas. The program provided lucrative hiring credits, sales tax credits, net interest deductions, business expense deductions and net operation loss deductions.

What new incentives does AB 93 create?

AB 93 creates a statewide sales tax exemption, which will be available for equipment purchases made by businesses engaged in manufacturing or biotechnology research and development. It will significantly modify and restrict eligibility for the hiring credit. AB 93 also creates a new investment tax credit based on a competitive application process.

How has the California sales tax exemption changed?

The new sales tax exemption created by AB 93 targets industries and activities rather than geographic areas. Specifically, the exemption will apply to manufacturers and biotechnology R&D companies. Qualifying businesses can exclude the first $200 million of eligible purchases per year from state sales and use tax. At least 50 percent of qualified purchases must be used in the process of manufacturing or R&D.

How will the hiring credit change in 2014?

Beginning in 2014, the hiring credit will be decidedly more restrictive and will apply only to the net increase in jobs. The expected effect of this change is significant. Many businesses that previously relied on hiring credits may no longer qualify or may see their benefits significantly reduced. The new law also makes changes to the definition of qualified jobs, including reducing the number of qualifying target employee groups and requiring hourly wages between $12 and $28 per hour.

What is the investment tax credit and how will it be administered?

The investment tax credit will be based on a competitive application process and will be awarded by a newly established California Competes Tax Credit Committee. Competitive criteria have been outlined and include the number of jobs created or retained, the compensation paid to employees, the total value of the investment made in the state, the level of unemployment in the area of proposed business locations and the overall economic impact in the state of the project or business. The Governor’s Office of Business and Economic Development will negotiate agreements with applying businesses, subject to approval by the committee.  

What do California businesses need to know before these changes take effect?

Businesses need to understand that the game has changed. Just because your business qualified for credits in the past doesn’t mean it will in the future.

If you were relying on enterprise zone credits, you should sit down with your accountant or tax adviser and analyze the effects of the changes. Getting caught by surprise with an unexpected tax bill could have a negative long-term effect on your business.

The new incentives are certainly worth investigating. Manufacturers and R&D companies will likely qualify for new sales and use tax exemptions. And the investment tax credit could be very lucrative for businesses that qualify and participate in the application process.

Marcus Halluin, CPA, is a tax manager at Sensiba San Filippo LLP. Reach him at (925) 271-8700 or

Insights Accounting is brought to you by Sensiba San Filippo LLP

The Check 21 Act, passed in 2003, had a dramatic impact on businesses’ cash flow by allowing banks to send digital versions of checks — eliminating the need for physical copies. Similarly, important developments are on the horizon to further enhance payment capabilities, says Tom Hoffman, senior vice president and manager of the Treasury Management Services Division at Bridge Bank.

“We’re seeing a lot of start-up technology companies focused on creating better ways to process payments, and adapters to allow accounting systems to interact with bank services,” Hoffman says.

Smart Business spoke to Hoffman about methods to help manage cash flow and services that may be available in the future.

How can a business tell what treasury management services might be needed?

A good banking partner should conduct initial assessments when clients start working with the bank, and also meet with clients on a regular basis to review needs.

For example, a growing business wanted to see if any changes could impact its treasury management needs. It had acquired a health insurance business in Southern California that processes COBRA payments, and payments were being mailed to central accounting at the company’s headquarters in Northern California. That’s a slow process. The business was able to set up a remote deposit capture (RDC) scanner to process checks electronically. There also are fields in the RDC platform for record keeping — for a payment of $100, the insurance company is paid $95 and $5 is kept for processing. Deposits are now made immediately, which speeds up cash flow and improves the flow of transaction data to the accounting system.

It’s a good idea to meet with your bank’s treasury management adviser at least annually to review your account. Look over the fees you’re paying, determine whether the services are worth the cost and see if there are other services you could be using.

Do businesses often pay for services that aren’t utilized?

It happens all of the time. There might be a base charge for Automated Clearing House (ACH) service and no activity. Maybe the business thought it was necessary, not realizing that if you’re not the party originating the ACH transaction, you don’t need the service. That can be confusing to many people. One of the benefits of treasury management consultation is that your bank should catch these oversights and alert you to save your business money.

How can business owners benefit from new solutions on the horizon?

Many start-up technology companies are working on adapters to create better ways to use existing payment rails such as the check clearing system, ACH, ATMs, and debit and credit cards. If you’re overseas, you can use your ATM card at a bank in London; so, why can’t you send a payment to an international vendor through this network and have an immediate settlement?

Technically, it can be done, but there are a lot of issues — international transfers are done through the Office of Foreign Assets Control. However with such efficiency, those things will be addressed. It can take two to four days to send a wire transfer internationally. It would be attractive to deliver a system to settle that immediately.

In terms of treasury management, the next step is to integrate enterprise resource planning systems with banking services. That’s already happening at Fortune 500 companies. The future is finding technology to create adapters that will connect the company’s banking services with its accounting platform. Businesses will be able to evaluate cash needs and reconcile the accounting system on a daily basis, rather than waiting for paper statements. It’s just a matter of creating an interface with whatever accounting software is being used.

One start-up company has a platform to upload accounts payable — all of the invoices a business receives — so payments can be reviewed and approved via tablet. CFOs want the ability to see every invoice and approve payment, even when traveling.

We’re going to see a lot of innovation. It might not be as dynamic as a new payment system, just modifying the ways existing systems are used to make cash flow more streamlined and free up working capital. Check 21 was a good example of that, and the efficiency, economic and environmental gains were tremendous.

Tom Hoffman is a senior vice president and manager of the Treasury Management Services Division at Bridge Bank. Reach him at (408) 556-8353 or

Insights Banking & Finance is brought to you by Bridge Bank

Some companies can’t afford or simply don’t perceive the need for in-house legal counsel. However, many are seeing the benefits of using outside legal help regularly, rather than when a problem is at hand, says Enrique Marinez, a partner at Ropers Majeski Kohn & Bentley PC.

“Smaller and midsize businesses need to be proactive and preventative in addressing issues that could lead to litigation problems. The role of general counsel should be one of collaboration and proactive planning to address some of those eventualities before they become problems,” Marinez says.

Smart Business spoke with Marinez about how to best utilize outside counsel to provide a level of service that replicates having in-house expertise.

Why has the role of outside counsel changed?

There’s been a proliferation of the use of electronic media and technology, which brings additional challenges that not all companies have kept up with. One problem that’s prevalent now concerns the handling  of electronic media — how to store backup tapes and how often backups should be run. Companies need to have polices and procedures in place to put holds on emails and electronic information when a claim or other circumstance arises.

Another problem area is dealing with employee complaints. You need to have policies to address complaints about the workplace environment — someone claims they’ve been sexually harassed or discriminated against because of age or race. There should be a procedure for how to investigate claims.

Other employment issues can range from  someone not being paid proper overtime, providing for proper meal and rest breaks or items like smartphones. If you send employees work-related texts, should you be paying for the phone?

If you have policies and procedures to guide you through these issues, you can follow those when a problem arises rather than responding in the heat of the moment.

Can’t these policy needs be determined by meeting with counsel on a regular basis?

Exactly. Risk management should be part of every company’s business plan. Part of that is meeting with a legal professional who can guide them so they’ll be better positioned when a problem arises. That should be on the agenda at meetings.

Often, counsel attends board meetings or company leaders visit to address issues such as policies and procedures for handling complaints and other employment issues. Believe it or not, there are a lot of companies that do not have employee handbooks.

Meet with counsel on a quarterly basis to make sure risk management procedures are in place and to ensure you have proper liability insurance, including directors and officers, and employment liability coverage. Make it part of the business plan to discuss preventative measures, so you’re better able to address situations as opposed to being reactive.

Do companies just not think about using outside counsel that way, or is it that they don’t want the expense?

It’s a little of both. Some people think that you use a lawyer only when you have a problem. But much of the problem can be ameliorated on the back end when there are preventive measures taken upfront. And, yes, there is a cost, but it’s often much less than waiting until a problem requires litigation. For example, if you don’t change your car’s oil, then the engine blows out and you’re paying $3,000. That type of analogy fits exactly for the use of outside counsel.

Plus, establishing an ongoing relationship with a law firm provides additional benefits. Counsel has experience dealing with other companies and exposure to how they have addressed employment issues. For example, a multiservice firm deals in many different disciplines and can help with insurance issues, obligations in real estate contracts and things of that nature.

Outside counsel should be viewed as an extension of your company that can provide assistance similar to in-house. It’s unfortunate that many companies don’t have a dedicated attorney to work with them and only seek legal assistance when there is a problem. When you reactively act on the defensive, things do not go as well as they could. Address issues head-on before they become the subject of litigation.

Enrique Marinez is a partner at Ropers Majeski Kohn & Bentley PC. Reach him at (650) 780-1679 or

Insights Legal Affairs is brought to you by Ropers Majeski Kohn & Bentley PC

Your business may be the largest asset in your retirement portfolio, but converting it into an income resource for retirement takes planning to ensure it has value, even after you are no longer at the helm.

“It’s important to start with the end in mind. What are you trying to accomplish?” says Sabrina Lowell, CFP®, principal and COO at Mosaic Financial Partners.

Those using their business as a retirement asset need to decide if they want the business to continue independently after they retire, or if they want to sell it, she says. In either case, business owners must come up with the end game before figuring out how to get there.

Smart Business spoke with Lowell about being purposeful with business planning and recognizing how much lead time you need to accomplish your goals.

Why is it important to manage a business as a long-term asset?

If you’re looking to exit, whether through retirement or a sale, and you haven’t purposefully mapped out a plan in advance, your business may end up without as much value as you thought. Some things to consider are:

  • The health of your customer base. Is your client base aging with you? This can be a concern if there’s a sole owner, or even a few owners of a similar age.
  • Human capital. Do you have an aging set of employees? Have you been bringing in the next generation, mentoring employees as future leaders?
  • Product offerings and innovation. Are your products and/or services evolving and relevant to the current market?

What must a business owner consider when preparing for an exit?

When you’re clear about your objectives, decision-making becomes much easier. As a business owner, think about what your goals are for the business long term. The goals should be simple and concise so that they can be used to test alternative decisions that arise during the years an exit plan often takes to implement. These objectives are often qualitative, such as:

  • Sustain client service standards.
  • Take care of employees.
  • Maintain company culture and values.
  • Further the industry.

How can you keep long-term planning from falling to the bottom of a to-do list?

Be purposeful about setting time aside to say: ‘What is my vision and how am I going to implement that plan?’ on an ongoing basis. Like any transition, it’s not easy. The more you can set up systems to help support that effort, the better.

There’s no hard-and-fast rule for how much time is needed. There is usually more work on the front end, before the plan just requires maintenance. Important, but not necessarily urgent, strategic planning can often fall to the bottom of the daily ‘to-do’ list. Setting aside 30 minutes or an hour each day to focus on the business can make the process more approachable.

Where can a quality financial adviser help?

A financial adviser can help determine your number — how much you need to get out of the business for retirement. This may give you more flexibility when structuring your exit. Perhaps you get some payment upfront and an ongoing income stream, rather than just payment upfront.

Your adviser will help you discover what the transition is going to look like, and how to begin preparing. It’s always difficult to make decisions around an asset when you have a personal, emotional connection. A financial adviser has an arm’s length perspective that can help with both the numbers and personal side of a succession plan.

Sabrina Lowell, CFP®, is a principal and COO at Mosaic Financial Partners. Reach her at (415) 788-1952 or

Insights Wealth Management & Finance is brought to you by Mosaic Financial Partners Inc.

One of the most unique aspects of Chevron Energy Solutions is that its largest customer is essentially itself — parent company Chevron Corp. Jim Davis, the energy group’s president, is quick to report that the relationship is mutually beneficial — and the cause of sustainability.

Chevron Energy Solutions is one of the largest installers of solar power in the U.S. public sector, including a recent innovative sustainability program involving the city of Livermore, Calif., expected to reduce its energy costs and save taxpayers nearly $10 million over the next 25 years.

That kind of savings is exactly what Davis and Chevron Energy Solutions have been working toward.

Earlier this year, Smart Business caught up with Davis at the EY Entrepreneur Of The Year World Awards in Monaco to discuss sustainability efforts within the energy industry and the U.S., as well as how the company remains innovative.


Invest in sustainability

To date, Davis and Chevron Energy Solutions have helped customers save a collective $1 billion in energy costs — and those solutions also include cost efficiency for Chevron itself.

 “Chevron has roughly a $7 billion annual energy spend running our worldwide operations,” Davis says. “Not only do we make a lot of energy, we use a lot of energy to make that energy. We go all around the world to our upstream and downstream operations and look for ways to reduce our energy footprint.”

Since 1992 Chevron has improved the energy efficiency of its own operations by more than 30 percent. Had the company not done that, its energy spend would be around $10 billion instead of $7 billion.

“Our company is growing rapidly, and we’re making huge capital investments in new projects, so our energy spend is always going to be increasing because of the growth of the company,” he says. “It’s really important that we manage our existing operations, as well as make sure that we build into the new projects.”

While Chevron itself is Davis’ single largest customer, Chevron Energy Solutions also offers those same services externally.

“We go out into the communities where we do business, and we leverage our expertise around energy efficiency, power system reliability and renewable power to help those communities lower their cost of energy, improve aging facilities and look for innovative ways that we can help impact what those entities are faced with every day,” Davis says.

Companies, towns and cities have to address sustainability efforts whether it’s due to internal or external pressures. If these organizations are not aware that climate change is a real phenomenon, they are being made aware by shareholders and stakeholders.

“At Chevron we see sustainability as a core part of every initiative that we do,” Davis says. “One of the largest projects that Chevron has is our large natural gas project off the west coast of Australia, a highly sensitive environmental area.

“There are tremendous natural gas deposits there that we can develop safely and environmentally friendly and sell to the Asian markets where they have a voracious appetite for energy, and natural gas is the cleanest burning natural gas there is.”

What made the Australian government invest in this project despite its environmental concerns for that sensitive area is that it’s going to become the largest carbon sequestration project in the world.

“We are going to capture all the carbon that’s emitted from producing the natural gas and inject it down so there is a minimal environmental footprint,” he says.

Another aspect of energy that Davis and his team are focused on is power reliability, especially in emerging countries.

“Power reliability is a challenge that every emerging country goes through,” he says. “In the United States, our electric grid is probably the most reliable in the world, but it’s now aging and in need of upgrades and infrastructure.

“We’re working on the opposite end of the spectrum. Emerging countries like different African nations need the basic infrastructure to provide high-quality, reliable power so they can attract manufacturing and technology companies.”

While the U.S. has one of the most stable electric grids in the world, it still lags behind some other countries.

“We’re probably behind a few other developed countries that either for price needs or other drivers might be slightly ahead, but the United States is a huge nation geographically,” Davis says. “Some of the countries that may be ahead of us are much smaller in terms of geographic footprint. Therefore, the challenges of meeting some of those sustainability efforts are easier.”


Focus on innovation

As any business goes through its various stages of growth, the leadership has to use different sets of skills. This year marked Chevron Energy Solutions’ 13th year as part of Chevron.

“In the startup days, you have to be very innovative, hire and retain talent, refine your business as you deploy in the marketplace, and you learn things from it,” Davis says. “You also have to be the steady hand, the calm in the storm, as you create this business and exude the leadership and confidence that this business will be successful.”

Today, with a solid track record of business success, Davis can focus on what’s next and think more strategically and longer term than he could in the early days.

“I think more about developing people, successors for key positions and recruiting and developing future talent, he says. “I think about execution of our projects and our business to make our company as successful as possible.

“In the long term, I’m thinking about innovation and new growth opportunities for the business. My style has evolved as the business has matured.”

As Davis has grown in experience, he has learned how to remain disciplined and focused on the core things in his business versus stretching too far.

“When you’re an entrepreneur, you feel like you have never met a deal that you didn’t like,” he says. “You only have limited resources and limited time to be successful. You have to stay disciplined and focused and being able to say what we are not is every bit as important as being able to say what we are.”

That ability has led Davis and Chevron Energy Solutions to remarkable success and won him the EY Entrepreneur Of The Year 2004 Northern California Award.

“We didn’t build a business to win an award, but what I found was that winning the award was meaningful to our employees,” he says. “It was a source of pride to our employees that we were recognized externally for the great work that they were doing.”

Attending events such as the Entrepreneur Of The Year Awards gives Davis opportunities for networking that he normally wouldn’t have.

“I run in energy circles, and it’s rare for me to meet the CEOs of companies in consumer products,” he says. “In many cases, those connections have led to unique business opportunities for us.”

Those kinds of opportunities, while beneficial, are a small percentage of how Davis drives innovation at Chevron Energy Solutions.

“There’s a real creativity to the solutions we provide to our customers, our engineers are looking at creative ways to solve our customer’s biggest challenges around energy,” Davis says. “At the same time, our customers want us to keep them on the proven edge of technology and the proven edge of innovation as opposed to the cutting edge.”

With other technologies, you make a decision to buy a product you may have to replace in just three to four years, but energy infrastructure has to work for decades.

“We want to innovate, but we want to make sure there’s going to be the long-term performance there,” he says.

One of the ways that Davis encourages innovation is through partnerships with technology startup companies.

“We look for alliances and what’s next in technology that can drive improvements and enhancements in our industry,” he says. “When we see a technology that’s promising we’ll start working with them and provide them with real-world market feedback.

“Secondly, as those technologies become ready for demonstration projects, Chevron will host those and try them out ourselves. That gives us experience with how those technologies perform and how to install them and operate them. That gives us the data and confidence to help them get to commercial deployment.”

Once those technologies are viable and ready, Chevron Energy Solutions can act as a built-in sales distribution channel.

“Our people are always looking for innovative ways to do things with the discipline of knowing that at Chevron we have to represent our brand and stand behind everything that we do and our customers expect us to keep them on that proven level of technology,” Davis says.




  • Focus on sustainability in all aspects of your business.
  • Change your leadership style and skills as your business matures.
  • Find new innovative opportunities in your industry.


The Davis File:

Name: Jim Davis
Title: President
Company: Chevron Energy Solutions

Education: Bachelor of science degree in business administration from The Ohio State University.

Items of note: Since 2000, Jim Davis has built Chevron Energy Solutions into one of the world’s leading energy efficiency and renewable energy services companies and the largest developer of solar power solutions for education facilities in North America.

The company was named a Top 50 firm by Fast Company in 2009, and in 2004 Davis was recognized for his achievements as the Northern California winner of the EY Entrepreneur Of The Year Award for social responsibility.


Chevron Social Media Links:

Twitter: @Chevron
Jim Davis on LinkedIn:



How to reach: Chevron Energy Solutions, (415) 733-4500 or

Businesses that don’t consider themselves likely targets of cybercrimes should think again.

Criminals view businesses as prime targets. According to a recent Internet Security Threat Report from information security firm Symantec, 31 percent of all targeted attacks are now directed at those with 250 employees or less, a threefold increase from 2011.

One reason smaller businesses are ideal targets is because they can be used to gain access to other companies. This common practice, when criminals seek alternate pathways to infiltrate larger institutions, is known as “spear phishing.”

Here are five tips that businesses can use to protect themselves.

Solidify your foundation

With a little research and some technical know-how, most business owners can take a number of steps themselves.

  • Install a firewall to prevent unauthorized users from accessing your private network.
  • Password-protect your Wi-Fi system. Encrypt your data.
  • Back up business-critical information at an offsite location.

For more ideas, look at the Federal Communications Commission’s cybersecurity tip sheet. The FCC also offers the Small Biz Cyber Planner 2.0, an online resource to help small businesses create cybersecurity plans.

Educate your employees

The National Cyber Security Alliance, a public education organization, provides a number of tips, including setting clear rules about what employees can install on their work computers and installing spam filters to prevent unwanted and/or harmful emails.

Track available access points

When all employees worked in a central location and used company-provided desktop computers, tracking and securing them was a much simpler task. Today, employees often use their own laptops and smartphones, opening employers to device risks and mobile application risks.

This “bring your own device” challenge may require a mobile device management plan that not only ensures the secure exchange of data between an employee’s device and the company’s systems, but also has the ability to track, control and wipe devices clean if lost.

Consider this fact from Lookout Inc., a mobile security company, when deciding: One in 10 people have had their cellphone stolen.

A typical mobile device management plan can also prevent applications from gaining access to information stored on users’ devices. Some malware steals credit card information and then signs people up for unwanted services. More serious versions may capture bank account access codes.

Invest in “security-as-a-service”

Until recently, the only way to monitor your company’s cybersecurity was to have a team of experts deploy a system onsite — an expensive endeavor. With the advent of cloud computing, businesses can benefit from greater economies of scale and streamlined delivery mechanisms, according to the Cloud Security Alliance.

Safeguard everything

You probably protect your company’s headquarters with guards, locks and closed-circuit cameras — how are you shielding your data?

Think about the impact on your business if your most valuable information was stolen. It could be trade secrets, formulas or other intellectual property. It could be customer data such as credit card or Social Security numbers. Or it could be the devastating leak of your financial reports or details of an upcoming acquisition.

Some insurance companies are selling so-called data compromise coverage to mitigate the impact of financial losses from data breaches. Given that some states require companies to notify individuals if their personal information is leaked, the reputation risk alone can damage your business. ●


Chris Hetterly is managing director of GE Capital’s Technology, Media & Telecommunications Business. He has been a leader in technology debt finance since the sector’s earliest day, founding the Technology Industry Group for Wells Fargo and co-founding the Defense, Aerospace & Technology Group for Wachovia Securities before joining GE Capital in 2011. For more information, visit

Connect with Chris Hetterly on LinkedIn 

Connect with GE Capital on Twitter @GELendLease


International expansion is a great way to grow as the U.S. economy slowly recovers, and the population and per capita gross domestic product of countries such as India and China continue to rise.

But finding funding for exports can be difficult, unless you leverage a government-backed program.

“Why turn away sales when you can get working capital assistance through government programs to penetrate red-hot foreign markets?” says Alfred Ho, vice president and enhanced credit specialist with California Bank & Trust.

Smart Business spoke with Ho about the benefits of leveraging guaranteed export financing.

What is the working capital guarantee program?

U.S. manufacturers were struggling to compete overseas, as foreign sales and receivables are generally excluded from traditional lending programs.

So, to spur exports and domestic hiring, the federal government offers guaranteed financing programs administered by the U.S. Small Business Administration (SBA) and the Export-Import Bank of the United States (Ex-Im Bank).

The loan proceeds under these programs can be used to purchase supplies and equipment, hire staff or, in the case of the SBA’s Export Express program, even attend an overseas trade show.

And because the terms are flexible, owners can use the loan proceeds to fulfill a large contract or several small deals.

How do the programs help small businesses?

The programs encourage banks to lend to small businesses by guaranteeing 90 percent of the loan amount and allow loan officers to consider foreign receivables and work-in-progress during the underwriting process.

Plus, if a standby letter of credit is required to support a bid bond, advance payment guarantee or performance bond, the collateral requirement to have one issued is only 25 percent, instead of the 100 percent in traditional cases. This provides an edge for a U.S. company in its quest for overseas contracts.

How much can companies borrow and what does it cost?

The SBA Export Working Capital program permits loans below $5 million. It charges an upfront fee of 0.25 percent of the loan amount and an annual utilization fee of 0.55 percent, which is assessed monthly.

There’s no limit to how much you can borrow from Ex-Im Bank, and its upfront fees range from 1 to 1.5 percent of the loan amount. The loan interest rate is based on the prime lending rate plus a spread. Interest rates for larger loans are based on the London Interbank Offered Rate.

What are the eligibility requirements?

Requirements differ among the programs but they all require a firm purchase order prior to advance and, minimally, shipment from a U.S. port to a country acceptable to Ex-Im Bank. Goods and services shipped must have at least 51 percent U.S. contents.

Certain products are excluded from the programs. A company must also have a positive net worth and be profitable for the last three years to qualify.

For other qualifications and restrictions, talk to your lender or visit the SBA or Ex-Im Bank websites.

How can business owners find a participating lender?

Your local SBA or Ex-Im Bank representative can provide referrals, but you can look for a Delegated Authority lender who has the ability to expedite your loan.

Your banker can walk you through the lending process and share helpful ideas. The banker should be able to suggest ways to lower the risk of international commerce.

The important thing is: Don’t venture into the international marketplace alone. Find a competent banker to serve as your guide.

Alfred Ho is vice president, enhanced credit specialist, at California Bank & Trust. Reach him at (213) 593-2118 or

Insights Banking & Finance is brought to you by California Bank & Trust

Accounting is the language of business. People use it to make decisions about the past and devise a plan to carry them forward. With the continuing emergence of fair value reporting on financial instruments, accounting no longer just looks back at what you paid, it values those assets today.

“Say you’re putting money into your 401(k). What if you didn’t know the current values? How do you evaluate your prior investment selections and how to move forward?” says Bryan Cartwright, financial services assurance partner at Moss Adams LLP.

“Likewise, if you’re on a company’s board of directors and you have no idea how much management is awarding in stock options because the options have no assigned value, it makes it hard to be an effective board member.”

Smart Business spoke with Cartwright about the increased requirements for fair value reporting.

How has fair value reporting intensified?

Privately-held and thinly-traded securities often have no observable market activity to provide current value information. Loans, bonds, companies, or preferred or common stock are, in increasing measure, being reported at fair value.

The Financial Accounting Standards Board (FASB) and the Securities Exchange Commission (SEC) continue to drive accounting standards and requirements toward the use of fair value, rather than cost, as the basis of value for financial assets. They have gone from requiring companies to disclose fair value in the back of financial statements to including them in the statements with strong support from financial statement users.

The latest push is for companies to disclose the way they’ve ‘fair-valued’ the information for each class of security or asset, and the significant inputs or variables upon which the fair values hinge. For example, instead of simply reporting that a loan has a fair value of $1 million, the disclosures are providing supporting information about the ‘unobservable inputs’ used by management to determine that value, such as a discounted cash flow technique or an unobservable input for the discount rate such as ‘Libor plus 500 basis points.’

Does this just apply to public companies?

It applies to any company or organization reporting fair values for assets or liabilities on a recurring basis, including public and private commercial enterprises, or anyone with financial assets or liabilities on their balance sheets reported at fair value on a recurring basis.

The pressure for accuracy is mounting from the top down. The SEC has been taking action against board of directors and management that it feels haven’t taken fair reporting requirements seriously, or have shown indications of intentionally misstating values. This has been particularly true in investment management, where the SEC has jurisdiction over registered financial advisers. It has been looking into the policies and procedures used by these advisers when setting values for private-equity and other securities, which play so big a role in investment strategies used by pension and profit sharing fiduciaries.

What advantage does more fair value bring?

Regulatory authorities want fair valuations to be accurate, supportable, and based on market information when available. With better information, whether modeled (unobservable inputs) or market-based, people are more accountable for assets they use and deploy.

For example, in 2005, after nearly 10 years of delay, the value of employee stock options began to be recognized in income statements. Executives, board members and shareholders gained much better visibility into the real cost of this compensation, which heightened the understanding of their use. It’s widely believed that the migration to more balanced compensation packages emphasizing both short-term and long-term rewards were due in part to this change in accounting.

How should executives react to this trend?

Everybody can agree on what something costs, but not everyone always agrees on its fair value. Accordingly, you need to be ready to defend your approach. Companies are building systems to document how they select their chosen valuation techniques among alternatives. The work needs to incorporate validation concepts including using ‘look backs’ to determine if selected techniques and procedures are still appropriate. Based on feedback from the SEC and others, companies really need to focus on market-based information when selecting valuation techniques and determining valuation inputs — it’s becoming more of a science.

Whether fair values are determined with internal resources or outsourced, your company is ultimately responsible for the assigned values. Currently, it seems that regulators are showing higher thresholds for proving that the values you select are appropriate. You can acquire valuation models, but a model is only as good as its inputs. Someone in your organization must have the education and skill to understand valuation requirements and communicate your approach, even if you outsource the work.

Overall, fair value is improving financial reporting, although it’s certainly uncovering more differences of opinion and subjectivity than we are accustomed to dealing with. But as people begin to believe in the reliability of fair values, more decisions will be made based upon them, making them more important still.

Bryan Cartwright is a financial services assurance partner at Moss Adams LLP. Reach him at (415) 677-8331 or

Insights Accounting & Consulting is brought to you by Moss Adams LLP

Wednesday, 30 October 2013 11:57

How top executives procure success

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Twelve years ago, EY decided to go global with its Entrepreneur Of The Year awards and establish the World Entrepreneur Of The Year program — and the results have been, shall we say, an international success. The conference, held annually in Monaco, features Entrepreneur Of The Year country winners competing for the World Entrepreneur Of The Year title.

Assembling business leaders from around the world in one place to be honored is a huge accomplishment — the wealth of experience, as well as the variety of successful leadership styles, is outstanding.

Here are some thoughts from the collection of the world’s most accomplished entrepreneurs — innovators, futurists, turnaround specialists and problem-solvers — about leadership styles. ●


“I built the company based on people, not on experience from before. They were willing to learn and try anything. We had a bunch of people who had never done this before. None of us had run companies. None of us had worked in high levels of companies. None of us were from Fortune 500s. Chobani not only became a business that grew, but Chobani was like a school to us, including myself.”

Hamdi Ulukaya

founder, president and CEO

Chobani Inc.

Entrepreneur Of The Year 2012 United States

2013 Entrepreneur Of The World


“Early on, the business was centered on me, and I had to make all the decisions alone. Now I share those decisions with my 10 main directors. If there are differences in opinion, I make the last decision.

The other thing is that I have had to ensure that the people who are invited to work here are people with principles, values, integrity, responsibility and passion. If I don’t see a person with passion, they don’t hang around the company very long.”

Lorenzo Barrera Segovia

founder and CEO

Banco Base

Entrepreneur Of The Year 2012 Mexico


“I’m a very passionate person, which will never change. When you grow, you gain more experience and the kind of problems you face change. As you grow, you need to grow with your organization.”

Martin Migoya



Entrepreneur Of The Year 2012 Argentina


“In the startup days, you have to be very innovative, hire and retain talent, refine your business as you deploy in the marketplace, and you learn things from it. Today, with a solid track record of business success, I can focus on what’s next and think more strategic and long-term than you’re allowed to in the early days. My style has evolved as the business has matured.”

Jim Davis


Chevron Energy Solutions


“Entrepreneurship and leadership is about always having ideas, knowing that it is possible even though everyone says it is too difficult. Maintain the positive and always have new ideas.”

Mario Hernandez, founder and president, Marroquinera

Entrepreneur Of The Year 2012 Colombia


“To keep the entrepreneurial spirit and entrepreneurship alive once you've got past the startup base, I think it is making sure people understand why they are there. There are always things you can do to improve your business. You should be rethinking and retooling it every chance you get. The key thing is to make sure everybody in the organization understands the story, where are you going — how are you going to get there? And the belief that you are doing the right thing —people want to know their purpose. Keep the energy going, keep a strong sense of purpose.”

Dr. Alan Ulsifer

CEO, president and chair


Entrepreneur Of The Year 2012 Canada



“The skill sets of an entrepreneur involve understanding how to create business. Why not work with kids who need it the most and actually teach them and help them to be entrepreneurs? That’s what is going to grow our economy and create stability where otherwise we’re going to have a lot of social unrest.”

Amy Rosen,

President and CEO

Network for Teaching Entrepreneurship


“I like to be involved. I want to know everything that is going on. But I have to delegate to my team. That was the biggest adjustment for me, and it’s not an easy thing to do. It’s that delegating to others, trusting them and reinventing yourself. Now that we’ve grown, I put more responsibility on my team and rely on my team more than I once did.”

Corey Shapoff

President and founder

SME Entertainment Group


“If someone makes a mistake, what do you do? You laugh with them. You don’t yell at them. You laugh. It just keeps things light and lively and people want to do their very best. You let them know they screwed up, but you also let them know it’s OK.”

J.C. Huizenga


National Heritage Academies

Wednesday, 30 October 2013 11:46

Listen, learn and lead

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Leaders often talk about how the traits of accountability and transparency helped make them who they are, but to retired Navy Adm. Mike Mullen, who served as the chairman of the Joint Chiefs of Staff for four years under President George W. Bush and President Barack Obama, leadership is quite simply how you listen, learn and lead.

It’s not just a coincidence that communication is as important in the war zone as it is in an organization — and that’s where Mullen emphasizes listening to what his team members have on their minds.

Smart Business talked with Mullen about the challenges of being in command:

Q. What do you see as the most important trait that any leader must possess?

A. Integrity. Be true to yourself, and obviously true to your values. The value of integrity intrinsically has been a driver for me since I was a midshipman at the U.S. Naval Academy. It has served me exceptionally well.

Integrity encompasses being honest, truthful and consistent — both publicly and privately in leadership positions — and representing that in every situation. It is most evident in the toughest decisions you have to make.

Q. And how can you ensure integrity is present in leadership?

A. What I loved about command was the responsibility and authority that came with it. But more than anything else, the other piece was accountability — accountable leadership. That is not just having someone hold you accountable, but having enough strength yourself as a leader to hold yourself accountable.

I just found that even with those decisions that can be very unpopular, if you are true to that value of integrity, even if it may not seem to some to be the best decision, it [integrity] holds you in the best stead as a leader over the long term. And because of that, it becomes incredibly supportive of those very, very tough decisions.

Q. So what can help a leader make those tough decisions more effectively?

A. As a more senior leader, I learned to keep a diversity of views around me. The more senior I got, the more diverse the people, the recommendations and the discussions had to be in order for me to make the right decision.

I had people around me who were willing to say, ‘Hey, this is when you got it wrong,’ as opposed to the opposite, which is isolation, where nobody will tell the emperor [he] doesn’t have any clothes on.

Q. You’ve mentioned the importance of listening to others in order to help you become a better leader. How did you do that?

A. Everywhere I went, whether we had a town hall meeting or we could call an all-hands meeting, I would take questions from the audience. So, for example, when a young enlisted man would give me a question of which I didn’t know the answer, I said, “I don’t know the answer, but give me your email address. I will go research it and get back to you.”

I did that. I went back and looked at whatever their concern was. And some of those concerns generated significant changes in the military, or in the particular service they were in. For me, as chairman, that was a vital part of trying to understand what I was asking them to do, and then taking that feedback and trying to fix the problem that they raised — if it made sense to do it.

A good leader can make such a difference, and create something out of nothing, whereas a bad leader is unable to do that. The ingredient that makes a difference is leadership. ●


Retired Navy Adm. Mike Mullen served more than 43 years in the Navy, having served as the chairman of the Joint Chiefs of Staff from 2007 to 2011, and as chief of naval operations from 2005 to 2007. He will be the keynote speaker at the Dec. 5 American Red Cross Hero Awards. Learn more about the Hero Awards at