Dealing with the daily responsibilities of running a business can distract an owner from the big picture. To take some of the burden off of CEOs running small and mid-sized companies, Professional Employment Organizations offer services that handle outsourced aspects of daily business, including recruiting, payroll, workers’ compensation, risk and safety management, and training and development.
However, selecting the right PEO for your company requires thoughtful consideration. And J. Richard Hicks, CEO of HR1 Services Inc., says that working with a PEO requires cooperation and commitment.
“This is really a partnership to help streamline and make your company more cost and time efficient. You need to work closely with your vendor and treat the relationship like a partnership to make it work for you,” Hicks says.
Smart Business spoke with Hicks about what to look for when choosing a PEO.
How does a PEO work?
A business and a PEO establish a three-way relationship — a co-employment arrangement — among the PEO, the client company and the company’s employees. This means the PEO co-employs your work force and becomes a legal employer responsible for such functions as payroll, recordkeeping, benefits and services, and participation in hiring, evaluation and firing. This frees up business owners to focus on the core operations of their business.
What do companies need to understand about the co-employment relationship they establish when working with a PEO?
The co-employment relationship allows your employees to participate in the PEO’s benefit programs, as well as its risk management programs. The employer retains control of the workplace, but when it comes to government compliance, the PEO takes those burdens off its hands.
What differentiates one PEO from another?
PEOs can be grouped by the range of services that they provide. Some could be considered turnkey and take care of the company’s employees from top to bottom. Others simply provide payroll and workers’ compensation services.
Every company has its own specific needs. Generally, the more people you employ, the more important HR functions become. Conversely, fewer employees mean fewer stresses exist on that aspect of your business, and all you would likely need to outsource are a few administrative services.
There are also PEOs that specialize in certain industries and you want to work with one that has experience relevant to yours. When you evaluate a PEO, ask whether it’s done work with companies in your field because that experience helps with the back end legal responsibility and mitigates your exposure. A PEO will never completely remove your legal exposure, but it will greatly reduce your risk.
Does hiring a PEO mitigate any legal risks associated with the services it provides?
It does mitigate them, but they never go away completely. An example of some items that will go away when you enter into a co-employment relationship with a PEO are 401(k) fiduciary requirements, health care fiduciary responsibilities in terms of COBRA administration and workers’ compensation liabilities.
Working with your PEO can also help protect you from many types of employee lawsuits. While the arrangement doesn’t prevent a lawsuit from being filed against your company, having a relationship with a PEO can greatly increase your protection.
Companies should make sure that their PEO has employers’ liability insurance, as well as errors and omissions coverage in suitable amounts that cover its entire block of business. You should also look into what resources it has available in terms of legal counsel.
How can a company rate a PEO’s affordability?
Look at your business and the issues you’re having with running it, specifically with issues such as all forms of insurance administration, insurance procurement, employee administration and federal, state and local compliance. Brainstorm those items out, pencil in who is doing that work and how often it’s being done. Typically when you’re looking at a company with about 35 employees, the person doing most of that work is the owner or CEO. Even if he or she doesn’t do it all, that person is involved in a lot of it. As a result, your cost for handling those issues increases dramatically, both with the owner’s time and with opportunity costs in terms of the time lost pursuing company growth.
The best way to evaluate the savings impact of a PEO is to look at the cost of employing someone to do that job, including salary, continuing education, vacation, coverage for when that person is on vacation and turnover cost, as well as any software or hardware expenses associated with a new position and new full-time employee.
When you hire a PEO, you’re hiring a team of experts, not just one person. The organization will have experience across a broad range of areas, and it never calls in sick, goes on vacation or asks for a raise every year.
How can a company determine which PEO is right for it?
The most important thing when choosing a PEO is to find a company that believes in doing business the way you do business — that treats employees the way you do. You should feel confident that you can reach the right person within the PEO to get a problem resolved. It comes down to finding people you want to do business with and who treat employees the way you want them to.
It’s not for every company, but if you have fewer than 200 employees, a PEO is something you should consider.
J. Richard Hicks is CEO of HR1 Services Inc. Reach him at (800) 677-5085 or RHicks@HR1.com.
Insights Outsourcing is brought to you by HR1
When it comes to hiring, staffing agencies are the experts. They know what it takes to create lasting employment relationships and can find a qualified full-time candidate quickly and efficiently, saving you the hassle of wading through hundreds of applications, says Rachel Ferguson, a recruiter with The Daniel Group.
“Agencies have a database of applicants they’ve screened and know what potential candidates are looking for in a company, job type and pay,” says Ferguson. “A recruiter will save you time and money, working to place the right candidate quickly so you don’t have to repeat the process if an applicant doesn’t work out due to a poor hiring decision.”
Smart Business spoke with Ferguson about how staffing agencies can help companies with their full-time hiring needs.
When working with a staffing agency to find a permanent employee, what is the first step?
The first and most important step is providing a detailed job description to the staffing agency you’re working with. The more information you can provide up front, the easier the process will be for everybody involved. When an agency only receives a barebones description of what is needed, the result can be multiple rounds of interviews to flesh out precisely what skills an employer needs, and that can result in frustration.
A clear job description allows the agency to get to work locating candidates. As the employer, you should expect applicants to be thoroughly screened and qualified before they are presented to you by the agency. You may only see three to five resumes out of hundreds screened in the search process. These are the candidates that your recruiter believes to be the best fit for your opening. You should consider your recruiter as a business partner who can guide the hiring process and who has the best interests of your organization in mind.
How does a staffing agency screen candidates?
With today’s technology, traditional interviews are not necessarily the only means of prequalifying applicants. Candidates may live out of state or have a demanding work schedule that can limit their ability to travel to an office for an interview. Skype interviews are increasingly common, and it’s not unusual for recruiters to talk to candidates multiple times per day by phone to gather more information.
Social media is also making a mark on the screening process. Recruiters can research any public profile the candidate has on sites such as Facebook or LinkedIn to get a better impression of his or her personality. Personality and skill assessments are great tools to gauge whether a candidate will fit a company’s culture.
What characteristics indicate a candidate could be a good choice for permanent employment?
Always look at a candidate’s tenure when evaluating a long-term fit. However, given the current job market, many people have been forced into working contract positions, so it has become tougher to judge work history based on tenure. A general rule is that the fewer jobs someone has held, the better indication of that person’s long-term employability.
Recruiters also look at whether a person has made multiple, broad, cross-industry career changes, which can be a sign the person doesn’t have a clear vision of career progression and may be more likely to leave a job when it gets tough.
Asking a candidate about hobbies can give a recruiter a broader picture of personality and help determine if he or she will fit with your company’s culture in the long term.
Is conducting interviews enough, or should there be on-the-job observation?
That depends on the company and the type of position it is filling. For many professional, senior-level roles, recruiters are interviewing candidates who are employed but considering new opportunities. For these, it’s much less common to see temp-to-perm strategies. It may be considered too risky for the applicant to leave a permanent position with benefits for a temp-to-perm role that could fall through. It is important to have candidates interview with key staff members they will potentially interact with and get detailed feedback.
Many characteristics can be discovered through a trial period, but if your recruiter is experienced and thorough, these can be uncovered before the candidate is hired.
What level of involvement should a company expect to have in the hiring process when working through a staffing agency?
Expect to be engaged from beginning to end. During the process, your recruiter may need to regularly follow up with you to fine-tune how candidates are selected. Communication is vital to ensure the right person is hired. Give feedback after interviews to discuss with your recruiter what is and isn’t working. Many times, hiring managers will make the mistake of interviewing and then falling silent for too long without feedback. Candidates in today’s market expect quick feedback, and an unresponsive client can leave a bad taste in an applicant’s mouth. While the employer has the final say in who it hires, your recruiter is responsible for narrowing the field, and communication is the best way to build trust.
Once a candidate is chosen, how can a company improve its chances of that person accepting the job offer?
The job offer is one of the most important parts of the hiring process. You may have conducted great interviews, but if you don’t have a lucrative job offer, you could lose the candidate. Undercutting a strong candidate at this stage says that you don’t value what they can do for you. Not only is the salary you offer important, but a strong benefits package goes a long way.
Also, secondary benefits such as health and wellness packages, contests and other perks can be appealing. Make sure you communicate to the candidate what special offerings your company has and build excitement to improve the chances that your preferred candidate will accept your offer.
Rachel Ferguson is an engineering services recruiter with The Daniel Group. Reach her at (713) 932-9313 or firstname.lastname@example.org.
Insights Staffing is brought to you by The Daniel Group
The Akron/Canton area has seen a lot of commercial real estate activity recently. The area’s industrial vacancy rate has gone down slightly, from 8.7 percent last year to 8.5 percent this year. While that rate is slightly above the Cleveland market’s 8.2 percent, it is still well below the national average of 9.7 last year and 9.2 percent this quarter. The office vacancy rate sits at 10 percent this year, up from 9.3 percent last year but still below the national rate of 12.1 percent this year.
Some of the biggest news out of the Akron/Canton area includes the expansion of Struktol. The rubber and plastics supplier is expanding its operations in the area and recently leased 97,000 square foot in Stow, in addition to its existing space in that area. Also illustrating industrial growth in the area, The Timken Co. recently moved into 28,000 square feet of additional space to expand its operations.
Smart Business spoke with Terry Coyne, SIOR, CCIM, an executive vice president with Grubb & Ellis, about real estate trends in the Akron/Canton markets.
What are the factors behind the changes in the office vacancy rate in Akron/Canton this year?
Office space is typically a lagging indicator and industrial space is a leading indicator. The region is experiencing significant occupancy by new players in the oil and gas industry. Without them, the vacancy rate would rise.
While the vacancy rate for manufacturing has remained flat from the year prior, sizable companies such as Struktol and Timken are expanding.
The increase in the office vacancy rate seems to be correlated with an jump in total square footage in the region, which increased by 268,813 square feet in the second quarter. It therefore seems that the increased vacancy rate could be due to new construction that has not yet been filled, or from companies that have moved into newly constructed buildings and vacated their previous building.
What is the news beyond what the numbers reflect in manufacturing real estate?
A lot of vacancies have been bought up. Getting someone in the large Lockheed Martin building was fortunate, but there are also some emerging trends that are leading to these numbers. First, many manufacturing companies are reshoring, meaning they are moving production from abroad back to the U.S. Second, the oil and gas industry continues to attract business. Third, many existing manufacturing buildings are being razed, which is reducing the inventory and shrinking the market for existing properties. This causes vacancy to go down and rents to increase. Although the industrial numbers appear flat, the market is improving.
In the Akron/Canton market, existing buildings are filling up with tenants. What does that say about commercial construction in the area?
It’s really very hard to get financing for the speculative construction of office buildings. The area will continue to see rents increase and vacancies decline until banks decide they will provide the loans necessary for the construction of speculative office buildings. What will likely happen is that more businesses will begin building to suit themselves. But the interest rates that make this the best case scenario are not there yet, and many companies are hampered by the amount of equity they need to get a loan, which can be near 30 percent.
The area will likely not see a substantial pace of speculative office building construction for another two and a half years. While this might not be good for construction companies, it is good for landlords who will benefit from increased occupancy and the ability to charge more for rent as the market tightens.
How is the Akron/Canton area real estate market faring compared to the nation?
Net absorption rates in the Akron/Canton area in the second quarter were 651,525 square feet for industrial properties and 25,662 square feet of office space. This year, to date, absorption for industrial properties is at 1,447,517 square feet and office properties are at 111,678 square feet.
Conversely, the industrial vacancy rates in the Akron/Canton area have improved slightly, from 8.7 percent this past year to 8.5 percent this year. In comparison, the national vacancy rate was 9.7 this past year and has shrunk to 9.2 percent this quarter.
Looking at office vacancies, the Akron/Canton saw its rate of 9.3 percent last year, grow to 10 percent this year. This opposes the trend that is being experience across the U.S., which had office vacancy rates of 12.5 percent last year that tightened to 12.1 percent this year.
How do you expect the year to finish in both office and manufacturing real estate?
I expect that you will continue to see a decent pace of absorption on the office side, but industrial absorption will slow.
In terms of new construction, we’ve seen industrial slow down and office keep its pace. There haven’t been any sizeable properties shutting down recently and there’s not a lot of unsettled market right now. In that sense, the good news is that the bad news is over. In 2010, we hit bottom and all the negative noise that appeared every day of another building shutting down has stopped.
Getting rid of any dilapidated supply — when it holds more value as a commodity than as an underlying asset — helps underlying asset values. While it can be understood that razing existing buildings might hurt because it increases the price of existing properties, pricing in this area is still extremely low. If you are looking for office space, it’s tough to find a better deal than in the Akron/Canton area.
Terry Coyne, SIOR, CCIM, is an executive vice president with Grubb & Ellis. Reach him at (216) 453-3001 or email@example.com.
Insights Real Estate is brought to you by Grubb & Ellis
There are many ways that small and medium-sized businesses can find themselves facing financial difficulties that lead to trouble in their commercial lending relationship. When this happens, many times business owners become paralyzed, shutting down and failing to communicate with their lender. While that is understandable, it is the wrong thing to do, says David M. Hunter, chair of the Real Estate Practice Group for Brouse McDowell.
“When a business anticipates that it is entering a period of financial challenge, one of the first things it should do is get competent legal counsel,” says Hunter.
Often, business owners only do this as a last resort. However, retaining knowledgeable counsel early on allows you to obtain practical pointers when there is often greater flexibility to negotiate an agreeable outcome, he says.
“Once a lawsuit is pending, things become much more difficult to negotiate, even with a lawyer involved,” he says.
Smart Business spoke with Hunter about how to work with your bank to preserve good relations during difficult financial times.
When a company realizes it may be headed for financial difficulties, what should it do first?
Small and medium-sized businesses typically have a large file that contains the underlying governing documentation when the business took out the credit facility. In the event that your business is slipping into financial turbulence, locate that file and review the terms and conditions of your loan.
However, most businesspeople are overwhelmed by the paperwork. This is a good reason to get counsel involved early. Your counsel will determine the secured or unsecured position of your lender. If your loan is secured, what are the assets that secure it and what are the current valuations of those assets? Is the loan in default? If not, what is the time period you project you could make the required payments and otherwise adhere to the terms of the loan agreement?
How can an attorney help?
A good attorney either has knowledge to assist a borrower facing a potential loan default or is with a firm with others who have knowledge of the federal bankruptcy law protections or other approaches that would aid a borrower facing an approaching problem.
Once you have secured counsel and discussed the issues, the next step is to contact your lender. Bankers appreciate knowing that a borrower is alert to the problem and wants to collaborate with the bank to address it or explore what remedial options are available.
Business owners often believe that banks want to seize a borrower’s property or shut down a borrower’s business. No bank really wants to do that. If it is reasonably achievable, banks want to rehabilitate nonperforming loans and transform them back into performing loans that pay as agreed. They want to lend money to borrowers that use loan proceeds effectively and to create an improved economic performance for the borrower, which will allow the borrower to repay the loan.
Are there risks in alerting a bank of a potential missed payment?
Some businesses, regardless of efforts taken to head off financial difficulties, can face a situation in which the next loan payment might be missed. No bank will think unkindly of a call from a borrower saying an upcoming payment might not be paid timely. Some borrowers might worry that if a bank finds out about a potential missed payment, an awful consequence will be triggered. But if that is the impulsive reaction you receive from the bank, you are likely dealing with the wrong bank.
However, after 90 days of delinquency, the loan will likely go into a nonaccrual status — a consequence which immediately and negatively impacts the bank’s earnings. This is a more serious situation. If you alert your bank early enough, it will likely work with you to find a solution. But it gets more difficult to take these steps the longer a borrower waits.
At what point does this become a legal issue?
There are legal issues every step of the way. But these become more acute when the evolving facts empower a lender to take steps that can disrupt a borrower’s business. Many loans contain a cognovit provision, a tool a bank can use if a loan is in default. This authorizes a bank to obtain an expedited judgment against a borrower. This expedited judgment can quickly empower the bank to attach the bank accounts or levy upon the assets of its debtor.
It’s important to communicate with your bank before such a provision is implemented in an effort to find a way to augment the terms and conditions of the loan to give the borrower a window of opportunity to make payments. This often leads to the creation of a forbearance agreement — a mutually agreeable written understanding between the bank and its borrower as to how the parties will treat this troubled loan. Forbearance agreements customarily provide that as long as the borrower adheres to the agreement, the bank will refrain from pursuing certain remedies, such as obtaining or enforcing a cognovit judgment.
Preservation of value should be paramount for both the borrower and the bank. Under potential default circumstances, borrowers and banks can do things that can negatively impact a business’s value, and banks know that. If a bank acts aggressively to prompt a forced sale of assets, often the value realized when the assets are sold will be reduced.
Before a borrower gets to that point, the borrower would be well advised to work with a lawyer and devise a strategy to deal with the situation. Often, the owner and lawyer can come up with a plan of payment and present it to the lender. If the plan is reasonable, many times the lender will be receptive.
What are some other potential resolutions?
There is often relief available in bankruptcy. But its practical effectiveness hinges on the size of the company, as the pursuit of such a remedy can often be cost prohibitive. Chapter 11 cases, for example, can come at a high cost and be labor intensive. But a Chapter 11 filing can make sense in certain circumstances.
David M. Hunter is chair of the Real Estate Practice Group for Brouse McDowell. Reach him at (330) 535-5711, ext. 262, or firstname.lastname@example.org.
Insights Legal Affairs is brought to you by Brouse McDowell
Women are playing an ever-increasing role in changing the economics of growth, growing businesses and jobs, and creating new opportunities for everyone. This is especially the case in economies that are slow or stagnant, where greater opportunity exists to start a business.
“Women are taking advantage of these opportunities in droves, and they’re able to grow businesses in times of slow economic changes,” says Stephanie Union, a partner and chair of Kegler, Brown, Hill & Ritter’s women-owned business area.
Many women have taken small mom-and-pop shops and grown them into successful small businesses.
“There’s a greater opportunity for women to do that today, whereas in past generations, there might not have been, and communities are benefitting from the number of jobs they create,” she says.
As women continue to progress in the professional world, mentorship programs, referrals and professional associations designed to support women business owners are increasingly important.
Smart Business spoke with Union about the unique opportunities women have today to give or receive advice that can help grow women-owned businesses.
How can women helping other women and referring business to each other be beneficial?
There’s recognition among certain successful women that you can pass on your success by referring your colleagues and friends to other female professionals. It’s amazing the number of referral groups, professional networks and organizations that provide many opportunities to get involved, a number of which encourage referrals among women. Having that camaraderie can help women succeed and gain ground in their own businesses.
There are also a number of certification programs for women-owned businesses that offer a leg up in terms of getting certain types of work from federal and state governments. For example, the Women’s Business Enterprise National Council will certify women-owned businesses, as does the Small Business Administration. The certification processes are rigorous, and companies have to prove that they are a woman-run business and that the majority of the company is controlled by a woman. The documentation and effort required to get certified is stringent, but that designation can be very beneficial for companies in certain industries.
How do the needs of women business owners differ from those of their male counterparts?
A number of women find themselves in industries traditionally dominated by their male counterparts, so finding their way among the men can be a challenge. Partnering with people who have insight into the industry can help them find comfort. Many women business owners have navigated the waters themselves and can help other women get established.
The needs of women business owners can sometimes be fulfilled more fully by fellow women. Women who are professionals generally have a better sense of what other women business owners are experiencing and what they have to face on a daily basis. That empathy can direct the way women do business together and help all of those businesses succeed and prosper.
How can women benefit from working with services that cater to women business owners?
Having ties with professional women’s groups can give someone perspective on the obstacles women deal with and how to support women going through those struggles. While the services aren’t different or better, they are provided in a way that women can appreciate more and respond to better.
There is something to be said for knowing the struggles women face and have faced. Taking these into account when giving advice can help women business owners succeed.
What issues are women business owners likely to face?
There have been historic struggles for women. While there are laws that allow women to vote or prevent discrimination, women still face struggles that are different from those that men face.
Maintaining a work/life balance is an issue for both men and women, but it’s hard when you’re a mother and working full time, considering there remain different societal demands for women than men. While conditions are changing, they haven’t fully equalized between the sexes, so daily struggles still exist. The goal is to recognize those struggles and support women by helping them find balance within the working world.
What can women do to help other women be successful professionals?
There are mentoring opportunities. Who better to understand the struggles of a woman than another woman? Some organizations and associations have mentorship programs, but, in my opinion, the best mentorships happen without much formality. It is better if the relationship develops naturally.
Natural mentorships are informal. It’s not a situation where you must meet with the woman you are mentoring four times per year and accomplish certain goals. Instead, it is a relationship that develops in which you care about the way the person you are mentoring is advancing and can offer her advice.
To be prepared to be a women business owner, you also need education. When starting your own business, there are a lot of things you need to know in terms of accounting issues and legal matters, including rules surrounding employees and hiring. You need to have a good education or surround yourself with people who have experience in those areas.
A number of women-focused associations or organizations can provide the support or connections needed to get a business up and running.
Stephanie Union is a partner and chair of Kegler, Brown, Hill & Ritter’s women-owned business area. Reach her at (614) 462-5487 or email@example.com.
Insights Legal Affairs is brought to you by Kegler, Brown, Hill & Ritter Co., LPA
If you run a small business that has had difficulties obtaining a loan, there is some good news. Preferred lenders can help businesses navigate through the U.S. Small Business Administration (SBA) loan programs to obtain financing needed for growth and expansion. The SBA loan process can be confusing, and small businesses may experience unknown challenges when applying, such as a collateral shortfall or not enough cash down payment to put into the transaction. However, preferred lenders, like community banks, can help small businesses with this process.
“We’re likely experiencing the lowest interest rates in history,” says Edward L. Wood, CTP, regional vice president of commercial lending for National Bank & Trust. “The ability to lock those rates in for a longer period makes today a compelling time to get an SBA loan.”
Smart Business spoke with Wood about SBA loans and how obtaining one could benefit your business.
What types of businesses can benefit from an SBA loan?
Typically, the SBA’s goal is assist small businesses with their growth and lending needs, rather than large corporations that do more than $100 million annually in sales. However, there are a variety of SBA rules that companies must abide by to qualify for an SBA loan. It is always recommended that the borrower find an experienced SBA lender who participates in the Preferred Lender Program (PLP) and can help you navigate the SBA requirements.
How do SBA loans differ from other loan products?
There are many advantages to SBA loans, including a lower down payment, sometimes as little as 10 percent, which is typical of two SBA programs known as 504 loans and 7A loans. You also can get extended payment terms with these loans. For example, lenders with working capital loans prefer to keep amortizations between 36 to 48 months. Under the SBA 7A guaranteed loan program, many lenders allow longer amortization periods, usually up to seven years, which provides an even greater benefit to the borrower.
Also with a SBA 7A loan, the bank is lending all of the funds for the project and the SBA provides the lender with a guarantee, generally around 75 percent of the total loan amount. These loans offer working capital to fund growth, accounts receivable and inventory.
The SBA 504 loan is geared toward equipment financing and/or owner-occupied real estate. With this type of transaction, the borrower has two loans — one with the SBA who finances 40 percent and the second with the lender who finances 50 percent. The borrower is only required to provide 10 percent equity in the project. Under the 504 program the lender maintains a first mortgage on the collateral while the SBA takes a second position. Additionally, with the SBA 504 loan, the borrower should be aware there are prepayment penalties within the first 10 years.
The effective rate for the SBA portion of the 504 loan in August 2012 was a fixed rate of 4.45 percent. The lender portion is usually handled with a five-year adjustable rate.
What is the process to obtain an SBA loan?
The process starts when a borrower contacts his or her preferred lender. The lender will assist him or her through every step of the process. The lender drives SBA 7A loans and capital lines of credit from start to finish and submits the transaction to the SBA for approval. For SBA 504 loans, the lender will also work with a third-party non-profit entity that will underwrite and submit the transaction to the SBA for approval.
To apply, simply provide the same information you would for any other type of loan. Lenders are looking for the last three years of business and personal tax returns of the guarantors and accountant-prepared financial statements covering the three previous years. A personal financial statement from each year and an aging of the business accounts receivable and payables are also needed.
Why is now a good time to apply for an SBA loan?
The uncertainty in the interest rate market makes today a compelling time to apply. Because of this uncertainty, the SBA loan becomes an incredibly viable product that could allow you to fix part of your total debt service for up to 20 years. Getting longer amortizations on working capital loans are compelling because it allows the borrower to stretch payments out over a longer period of time, thus reducing your debt service requirements.
There is also uncertainty in the market, not only in terms of where interest rates will head but also where inflation will be and the debt level the U.S. has taken on. While interest rates will rise no one can be sure when that will happen, so it is to a company’s benefit to act now.
How can working with a community bank to obtain an SBA loan be beneficial?
A community bank has the ability to better execute an approval. There are fewer people at the top involved in the approval process than at a larger bank.
Depending on the type of transaction, it could take three weeks to get an approval once the lender receives all necessary information. Community banks are well suited to obtain all the necessary information upfront, which can help avoid delays.
Edward L. Wood, CTP, is regional vice president of commercial lending and the HCDC (Hamilton County Development Corporation) 2011 lender of the year. Reach him at (800) 837-3011 or firstname.lastname@example.org.
Insights Banking & Finance is brought to you by National Bank and Trust
During the next two years, there are things that employers need to know and need to be doing to comply with the Patient Protection and Affordable Care Act.
“While this was working its way through the Supreme Court, many were holding their breath waiting to see what would happen,” says Dale R. Vlasek, a member and chair of the employee benefits practice group for McDonald Hopkins. “The decision is that it is constitutional, which means that businesses must take action.”
Smart Business spoke with Vlasek about the changes businesses need to be aware of as health care reform takes effect.
How does the ruling play out for employers?
The Supreme Court determined the individual mandate — the requirement that all U.S. citizens have health insurance — and imposing a penalty or tax on those who do not purchase insurance is constitutional. Large employers effectively face a similar mandate, called shared responsibility, or ‘pay or play,’ that goes into effect in 2014, requiring that they offer a health care package that is affordable, limits an employee’s cost sharing and provides essential benefits, or the employer must pay a penalty.
Large employers are those with 50 full-time employees who worked at least 30 hours per week during the previous year. To determine if your company fits this description you should add up all the hours worked by full- and part-time employees and divide that total by 2,080. This could show that you qualify as a company with more than 50 employees and that you must provide your employees with the opportunity to participate in your benefit package or pay a penalty.
How will the mandate affect the benefits offered?
Medical benefit packages must offer a certain level of coverage. There should be a limit on cost sharing in terms of deductibles and co-insurance, and it must be affordable, which means the amount an employer can expect an employee to pay in terms of premium costs. The way the law is written, premium costs can’t be more than 9.5 percent of an employee’s household income. That can be difficult for an employer to determine, so the IRS allows employers to work from an employee’s W-2 income statement.
If the employer chooses not to offer benefits, it will pay an excise tax that is $2,000 per year, multiplied by the number of uninsured full-time employees. The employer can, however, subtract 30 employees from the total who are uncovered, leaving it to pay penalties only on the remaining
If an employer is offering coverage that some can’t afford, those employees could get into a health care exchange or potentially be eligible for subsidies or tax credits to help pay for coverage. The employer then must pay an excise tax, but only on those who are eligible for the tax credit or
How else might existing benefit plans be impacted?
Insured plans previously had no discrimination rules from a tax perspective, so, for example, you could have a plan that only covered executives. However, health care reform changes that. You can’t be discriminatory and you may need to cover broader classifications of people. This component has been put on hold while the IRS, the Department of Labor and the Department of Health and Human Services write regulations that outline how companies must comply.
Plans that were grandfathered — or those that have been in existence since March 23, 2010 or earlier and that haven’t changed, can continue to operate as they did, even if, under the new law, they could be considered discriminatory. But as the insurance industry moves to provide better benefits and makes changes, these plans are being redesigned and companies may have a difficult time remaining grandfathered.
Will flexible savings accounts face changes?
Previously, there weren’t any limits on how much pretax money employees could defer into FSAs, but the accounts are ‘use it or lose it’ so if the employee didn’t use the benefit the employee lost it. As a result, employees had to look ahead and figure out how much they might need to spend within a year.
Starting in 2013, there is a cap of $2,500 on FSAs. Employers will need to amend their plan documents and the IRS has issued guidance that says this can be done by 2014, as long as it operated in accordance with the law in 2013.
What will change from an administrative and reporting perspective?
For 2012, employers must report on W-2 forms the cost of the health benefits being provided to an employee. Initially, this requirement is limited to employers that issued at least 250 W-2s in the prior year, but eventually all companies will need to comply. On W-2s issued for 2012, companies must put in the actual costs, and for employers that are self-insured, they are required to put in the COBRA cost. There is concern that this is the first step toward making benefits taxable or using the information to determine who should pay a penalty for lack of coverage.
Also, the law requires employers to issue a summary of benefit coverage, a four-page paper that presents key features of the plan, the benefits, cost sharing and an explanation of what it pays for in three common claims scenarios. It also highlights deductibles and copays, who to talk with for more information and a glossary of common terms or a link to a website with that information.
The best strategies for employers is to begin examining their plans to ensure that they are in compliance when the new rules take
Dale R. Vlasek is a member and chair of the employee benefits practice group for McDonald Hopkins. Reach him at (216) 348-5452 or email@example.com.
Insights Legal Affairs is brought to you by McDonald Hopkins LLC
Selling your company or merging with another company is a time-consuming process that requires meticulous attention to detail. While there are practical and necessary steps to prepare for a merger or acquisition, such as obtaining counsel, choosing an investment banker and preparing your financials for review by potential buyers, there is an emotional component as well.
“A big concern a business owner has in this situation is to prepare for the reality of letting go of something he or she has had for many years,” says Robert T. Pacholewski, vice president at MelCap Partners LLC. “You can talk about a sale and all the positives associated with it, but the reality is, it can be difficult to let go.”
He says that while it is an exciting event, there can be remorse and doubt.
“Many business owners have spent more time with their business than with their own family. Letting go of that is a hard thing.”
Smart Business spoke with Pacholewski about how to complete the M&A process, both practically and emotionally.
What can trigger the M&A decision?
One of the triggers for a seller is age and impending retirement. Another trigger is that an owner might want to leave his or her current business to start a new enterprise or look for outside investors to get additional capital infused into the business.
On the acquisition side, a business owner may be looking to buy another company to enter into new markets, to capture new technologies or products, to acquire a company’s management skill set or to gain production capabilities.
Who should business owners consult before moving forward with a merger or acquisition?
Owners should consult their most trusted advisers at the time a deal is put forward. Consulting with a trusted attorney, accountant or investment banker can help owners determine if they are ready to sell or merge. Many times, an investment banker can be brought into a situation by an owner’s trusted adviser. The investment banker can more fully vet the process and talk with the business owner about what is involved in the very emotional decision of merging or selling a business.
Also, business owners on the verge of an M&A decision might benefit greatly from talking with a close personal friend who has gone through a similar process to better understand what they are getting into from a business owner’s perspective. Most private middle-market business owners will only do this once, so they need to make sure they understand what they’re getting into. It can be exciting, but it can also be very difficult letting go.
What should be discussed and put in order before moving forward with a merger or acquisition?
In the event that your business is going through an expansion, launching a new product or entering into new markets, make sure that it has had enough time to come to fruition before deciding to sell. It could create a potential problem wherein the buyer might believe that the plan could be too difficult to complete if the sale is announced during such an event.
Furthermore, it is important to get your facilities in order. This can be simple housekeeping, such as making sure facilities are clean and putting on a coat of paint.
Also make sure your company is in compliance with all laws and regulations that govern how you do business. You don’t want any negative surprises.
Once the decision to move forward is made, what are the steps that follow until the M&A process is complete?
First, determine the goals and objectives you want to achieve through the sale process and hire an investment banker whom you expect will meet them. It is not uncommon for business owners to think their company is worth more than it actually is in the market. An investment banker will evaluate the business and present a range of value for the business. Business owners have to evaluate their goals and objectives realistically and have people around them who can help them meet their goals. A sale process can take six to 12 months to complete and it would be a major setback if expectations were unrealistic and not met.
Then put together basic information on your business, such as sales, production, customers and suppliers to create your confidential sales memorandum. This may require looking ahead two or three years and back four to five years to put all the projections and historical data together for prospective buyers.
After all the information is gathered, the investment banker will put together a group of potential buyers and market the business. Eventually, you will enter into a letter of intent with one buyer to allow that entity to complete due diligence. It typically takes 90 days to complete the transaction.
How can business owners brace employees for the change?
Usually, the sale is kept confidential from employees until the business is sold, with the exception of key managers. When communicating that the business has been sold, it is critical to talk with your employees about the process because they want to know what it means to them. For instance, do they still have a job? Both the management team and your employees are vital to your business going forward. Make sure you communicate with them at the appropriate time.
How you present the news can vary from company to company, but generally, it’s best to talk with them in a way that is consistent with your style and philosophy.
Making the companywide announcement can be very emotional. If you’ve owned and operated a business for 30 years, your employees can become like family, and it can be a very emotional conversation.
Whatever your delivery, the general message should be that a lot of careful thought and consideration went in to the sale and you’ve found the right buyer to allow the company to move forward and prosper in the future.
Robert T. Pacholewski is vice president at MelCap Partners LLC. Reach him at (330) 239-1990 or firstname.lastname@example.org.
Insights Mergers & Acquisitions is brought to you by MelCap
While the new wave of banking regulation may portend of doom and gloom to some, there is still a light at the end of the tunnel for many businesses.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed two years ago as a result of the economic downturn, contains about 400 new regulations for the banking industry.
“That’s a significant increase in regulation for the industry,” says Paul Murphy, president and CEO of Cadence Bancorp LLC. Some of these regulations, he says, go beyond where the problems existed and into areas that were already well regulated, which could potentially lead to over-regulation. In addition, Basel III, the new capital standards guidelines for the international banking community, will begin to be phased in over the next three years. By 2015, all banks will be required to have the same definition of and same types of capital requirements, which theoretically will create more stability in the system. This means that banks will need more capital to do the same amount of business that they did prior to the changes.
“The question becomes, ‘How are you going to raise the capital required to be in compliance?’” says Murphy. “Over time, banks will have to charge a little more than they have been and their net interest margins will have to be wider to provide for the additional capital requirements. And while we are concerned about too much regulation, the safety of the financial system is key to America’s growth. I believe the regulators are aware of these issues as we move through this process.”
Smart Business spoke with Murphy about the regulatory climate for banks and how it will impact small- to mid-sized businesses seeking loans.
What has been happening to small banks?
The number of banks sold in 2010 was 130, and 118 of those had less than $1 billion in assets. In 2011, 124 banks were sold, and 112 of them had less than $1 billion in assets. This year so far, 83 banks have sold, and 74 had less than $1 billion in assets.
The trend is compelling — small banks are going away and very few new ones are being chartered. Banks are getting bigger because they can effectively spread the cost of regulations across their base of assets. Bankers are in the midst of coping with these regulations, which ultimately will continue to drive banks to merge or to acquire smaller banks because the cost of compliance is significant.
How will the new regulations impact businesses?
The concern for business owners is that, as banks become more regulated, it stifles the industry, inhibiting banks from taking reasonable risks, and reasonable is an important word. You want a banker to believe in your business and support you with good loans at good rates. But if banks become too concerned about regulations, it could limit their ability to provide credit products.
Credit is the lifeblood of our economy. A healthy banking industry that is well capitalized and responsive is desirable because loans to businesses mean jobs. Banks are a critical part of our economy, and having healthy banks can lead to job creation. It is understandable why some people think there is less credit available today than there was in 2007. What is likely the case, however, is that, prior to 2007, the United States experienced credit excess, and today, we’ve settled back into modest credit availability. While some start-up businesses might not qualify for certain loans based on their risk profile, good borrowers and healthy businesses are still being funded.
How can the consolidation of banks to strong regional enterprises help small- to mid-sized businesses in this highly regulated environment?
Regional banks are big enough to have a range of products and services, work in diverse geographies and have strong capital that leads to a larger loan limits. Further, regional banks are well hedged across investments, which offer a stable, balanced platform. The size of these institutions also results in more competitive pricing when compared to smaller banks.
Also, in today’s economy, technology is critical to businesses. Regional banks can afford to invest in technology because they can spread the cost over a larger base of customers and they’re incentivized to make further investments because it can lower the customer’s cost of doing business. Banks can be true technology partners.
How can a bank help businesses operate more efficiently?
Banks can help businesses though the smart, effective use of technology. Technology lowers costs, improves controls, reduces paperwork and mitigates risks such as fraud.
For example, business owners who worry about security over the Internet should be aware that the 128-bit encryption has not been broken and has protected banking and many other data transfers across the Web safely and effectively. Further, with technology, you can have fraud protection software scanning for irregular transactions. Generally, data moves faster, account balances post quicker and more information is available to the owner of the accounts, which ultimately means greater security.
Knowing what is happening with your accounts on a more timely basis allows you to mitigate fraud. Banks can also ensure a company’s money is working for that company all the time, whether it is through such enhancements as an accounts receivable lock box or an accounts payable lock box.
Outside of banks, how else can a business acquire the capital it needs?
Another primary channel for small- to mid-sized business loans is in the private equity investment community, where you go to a group of investors who have raised capital for the sole purpose of investing. There are also angel investors, which can include family and friends willing to invest in your company.
Businesses can also get financing through factoring companies and leasing companies, which provide capital for equipment.
Paul Murphy is president and CEO of Cadence Bancorp LLC. Reach him at (713) 871-3901.
Insights Banking & Finance is brought to you by Cadence Bank
The impact of intellectual property litigation can devastate a small business, as it is an extremely expensive and there are many steps involved in preparing a defense.
“The most important thing is to not ignore the complaint,” says Jude A. Fry, a partner with Fay Sharpe LLP. “When a complaint is delivered, you typically have 21 days to answer or to file a motion to dismiss. Don’t just sit on it for two weeks and then decide you have to act because there is a lot you need to do immediately,” she says.
Smart Business spoke with Fry about how to defend yourself against intellectual property infringement lawsuits both before and after a complaint has been filed.
When a suit is filed, how much time can pass before a company needs to take action and should you assert potential defenses?
Act immediately. Contact and retain legal counsel as soon as possible. Preferably, hire an attorney who specializes in patent, trademark or copyright law who can help you figure out the strength of the complaint and your potential defenses.
However, chances are that the attorney you hire will want a retainer. Ask him or her for an estimate of the attorney’s fees you may expend over the course of the litigation so that you’re aware of the potential costs of the suit. Talk with your general counsel to get a recommendation for someone who could handle the case.
It’s possible to assert a counterclaim against the other side to try to leverage a settlement. For example, the products of the entity filing the suit could be examined to determine if any infringe on your patents. You can also assert counterclaims that the other side's intellectual property is invalid or unenforceable, assuming you have a basis for making these claims. Once the other party is under the gun, it may not want to pursue the lawsuit.
The counterclaims that you assert are going to be related to the facts that are alleged against you in the complaint. There are times when the other side may try to file a motion to strike your counterclaims or remove them to a new litigation, but typically they are going to be part of your answer to the complaint.
Can claims contained in the complaint be covered by insurance?
Yes. Particularly if the claims include an advertising component, they could be covered under an ‘advertising injury’ provision of a comprehensive general liability insurance policy. While this type of provision is often part of a policy, it usually has exclusions.
Immediately contact your insurance agent and send him or her a copy of the complaint. The insurance company could agree to defend you in the suit and cover your attorney’s fees. However, it may retain counsel of its own choosing to defend you, and you might want to dispute their choice.
The insurance company may also pay the other side to settle the matter or pay any judgment against you, although this is often only the case when you’ve included previously such a clause in your policy. Either way, it’s worth the time to determine whether your insurance will cover any part of this.
Should documents and emails related to the complaint be destroyed?
Definitely not, because the court is likely going to discover you did so and will sanction you. As a result, you will either have to pay damages or the court could presume that you have done something wrong. Destroying evidence could be devastating to your case.
Contact your IT department and place a preservation hold on documents, including emails that may pertain to the litigation. Take affirmative steps to make sure all evidence is maintained and put steps in place to ensure that you identify and protect documents that, without intervention, could be destroyed.
Have an attorney speak with key people who may have knowledge or documents that pertain to the litigation and advise them of the necessity to preserve evidence.
How can a company assess its potential exposure in a lawsuit?
Work with your lawyer to see what types of damages could be available to the other side, such as monetary damages that could include an award of your profits, a reasonable royalty on sales of infringing products and actual damages to the other side. Also, estimate your sales of the product that has been accused and the profit that you made from those sales.
Statutory damages could also be available in copyright infringement cases. Statutory damages can be applied if fault is established without proof that the claimant has been damaged or that it lost sales to you. Damages claimed can range from $750 to a maximum of $150,000 if willful infringement can be proved.
Also, consider the business implications of an injunction enjoining the sale of the accused product. This could result in an injunction that prevents you from selling the product associated with the violation, which could mean the end of your business.
What steps can a company taketo avoid this type of litigation?
Do your research and determine whether competitive products are protected. Examine packaging, advertising and websites for trademark and copyright symbols and references to patent numbers. If a party is holding a similar product out as covered by intellectual property, talk to an Intellectual Property lawyer prior to selling or manufacturing your product. While there is always the chance that regardless of the precautions you take, you could still get sued, consulting with counsel in the early stages can better position you to disprove a claim that you intentionally infringed a copyright, trademark or patent.
Also, apply for your own intellectual property protection. In addition, if you are working with independent contractors, make sure you have agreements in place to ensure you own all the rights in the work and that your employees execute agreements assigning all rights in IP to you.
Jude A. Fry is a partner with Fay Sharpe LLP. Reach her at (216) 363-9000 or email@example.com.
Insights Legal Affairs is brought to you by Fay Sharpe LLP.