Kristen Hampshire

Monday, 25 June 2007 20:00

The keys to growth

Business is a lot like a muscle-building workout. You stretch your capabilities, you work through sore spots and adapt. You grow stronger, then you push the limits again.

“I don’t know of any successful business owners who are willing to remain stagnant and don’t want to grow,” says Lori Geier, vice president and team lead, business banking, Fifth Third Bank, Cincinnati.

Smart Business asked Geier to review the various stages of a new venture’s first year in business, prompting questions business owners should seriously consider so they don’t end up writing an episode of “failure to launch.”

What is the most challenging time for a business owner who wants to expand or start a new business?

The hardest part is what happens before the door opens — that all-important planning phase. This is the time before you secure capital for your business and during the point when you should be discussing with your advisory team (accountant, attorney, insurance specialist, banker, etc.) the viability of your new product/service/business. In short, you need a well-laid plan. Be prepared to define why this venture will work, which customers you will target and what resources will support your idea. Do you have the right people in place? Is competition doing the same thing? If so, are they in close proximity? As you analyze the upsides, also consider the potential obstacles and risks. Use your banker as a sounding board when answering these questions. It’s important that he or she serves as one of your trusted advisers — someone who can provide candid feedback based on experiences with other clients in similar and different industries.

Why is assessing risk such an important exercise before securing capital?

A banker can sometimes assess the level of confidence business owners have in their ideas based on the equity they are willing to invest or assets they are willing to pledge. However, it’s important to set a limit and decide ahead of time how much risk you are willing to take in leveraging your personal assets.

Aside from personal risks, consider risks associated with the economy, your industry, seasonality, suppliers and materials. Determine whether there will be enough return on your capital to make it worth the risks involved. Your accountant can help you determine this by helping you project cash needs and expected returns.

Even if you are leveraging capital against a current, successful business, be careful about how much you are willing to lose.

What are some common mistakes business owners make when they are securing capital to fund a new venture, product line or expansion?

It’s important to have access to adequate capital to finance your venture. If you are borrowing, use the appropriate credit facilities. Generally speaking, you don’t want to take out long-term financing for a short-term need; rather, time the loan repayment to the useful life of the asset that will support it. Also, you want to anticipate your cash flow needs — don’t underestimate your organizing and operating costs. Work with your banker to balance your cash flow so that you remain properly capitalized.

No matter how tight cash flow gets, always be sure to pay the basics: real estate taxes if you own property, business insurance, health insurance and payroll taxes.

That brings us to the first 90 days of a venture/new product/business. What should owners consider at this point?

This first three months is an evaluation phase. Is your idea taking hold in the marketplace? Are you targeting the right customers? Do you have the right suppliers and are they reliable? Did you secure enough of the right kind of capital? What obstacles do you face at this point, and who is your competition? Answering these questions when you are so close to the business is a challenge.

In addition to your advisory team, recruit a peer group of business owners that face similar challenges. They can often see the rough spots in a business process before you can, especially if you are focused in everyday operations.

Once an owner establishes a successful process, secures a strong customer base and reliable suppliers, what’s next?

The nature of most business owners is to expect success. But the first year isn’t always profitable, and rarely does an entrepreneur strike it rich on a venture after the first 12 months. So be patient. Consult with your advisers, your peer group and your colleagues. Strategically implement changes to strengthen the operation. At this stage in the game, building a solid process is just as important as growing the top line.

LORI GEIER is vice president and team lead of business banking for Fifth Third Bank in Cincinnati. Reach her at (513) 561-2359 or

Monday, 25 June 2007 20:00

A clear plan

So often, employees walk out of meetings designed to teach them about their retirement investment plans with blank stares. A representative from the investment company makes a speech, talks numbers and reviews plans, and the take-away is nothing but confusion. It seems education is a critical missing component of retirement planning.

“If you offer a retirement investment plan for your employees and you are the trustee and plan administrator, you have a fiduciary responsibility to educate all of your employees on a regular basis,” says Carina S. Diamond, managing director, SS&G Wealth Management, Akron. “That doesn’t mean you or your employees have to be experts. But you have to at least offer some information on the basics: how to select investments, how to plan for retirement and how the plan works.”

Smart Business spoke to Diamond about what employees need to know about plans and how to tell whether they are getting the right information.

How does a business owner know if employees are getting the proper education?

There are red flags that indicate that employees do not understand a retirement investment program, or perhaps the plan is being misrepresented. Look at employee participation trends. Do you notice that workers under the age of 30 are not participating? Or, is there a close-knit group of employees who have opted out of the plan? The first scenario could be a sign that your employees think the plan is for ‘old people.’ You should focus your education on the time value of money. In the latter situation, keep an eye out for an employee who is influencing his or her friends to not participate.A ringleader of a clan within a company may have spread an inaccurate, negative message about the plan: ‘It’s not worth it,’ or ‘They’re taking your money.’ Obviously, these remarks are inaccurate and inhibit other employees from participating.

Business owners should also absolutely abstain from offering investment advice. This is a job for a qualified professional. The bottom line: Analyze participation trends and determine any misconceptions before designing an education program.

What are key messages to drive home when educating employees?

A lot of the education should be centered on encouraging employees to save more. I really emphasize that retirement planning should be a top financial priority for employees. People tend to defer planning for their retirement because they fund their children’s college educations or their own lifestyles. But there are no scholarships or loans for retirement. I also talk about social security, or social insecurity, as I call it. It won’t look the way it does today, which puts more responsibility on employees to participate in — and employers to offer — investment plans.

What topics should the registered financial advisers cover in education sessions?

It’s not a bad idea to provide a Financial Planning 101 session. The financial adviser should cover basics like paying off debt, planning for retirement, etc. Your plan adviser should lead meetings that focus on the retirement investment plan at least once a year, explaining in simple terms how the plan works. Which funds are included? What was last year’s performance? How does the adviser decide which funds to bump from the plan and replace?

There are many tools today designed to help employees save more, but they aren’t helpful unless people understand how they work. For example, some investment companies have programs where, every year, employees’ contribution to the plan increases by a certain amount, say, a percentage point. So in 2006, an employee saves 4 percent of his or her earnings. In 2007, an automated function bumps that savings to 5 percent, and so on. Also, there are Web site tools that employees must learn to use. A meeting like this is a great time for the adviser to provide a tutorial.

What are some signs that a financial adviser isn’t really working for the company?

If you don’t notice that one or two funds disappear off the list each year and are replaced by new funds, I’m willing to bet your financial adviser is not watching the plan carefully. No fund stays strong all the time. Monitoring investments and recommending changes to the business owner is your financial adviser’s fiduciary responsibility. There should be at least an annual formal review of funds where the adviser determines how funds are performing relative to their benchmarks. The financial adviser should look for changes in fund managers and risk profiles and take action.

How often should a business owner ‘shop’ investment providers?

Every three to five years, make sure your plan is still competitive and that the fees make sense. Find out about discounts as you move to higher levels. Technology in this area is advancing so quickly that if you don’t shop the marketplace every few years, you and your employees may be missing out on many new progressive tools that are available.

Registered representative of and securities and advisory services offered through Multi-Financial Securities Corporation, Member NASD, SIPC, an ING company. SS&G Wealth Management and SS&G Financial Services are not affiliated with Multi-Financial Securities Corporation or ING.

CARINA S. DIAMOND, CFP, LTCP, MBA, is the managing director of SS&G Wealth Management LLC in Akron, Ohio. Reach her at (330 )598-2208 or

Saturday, 26 May 2007 20:00

Value of a board

Asounding board and set of experienced mentors is exactly what every type of business needs. Gaining outside perspective on issues can help a business owner make grounded, forward-thinking decisions. A properly functioning board of directors will hold owners accountable for goals and provide insight on a variety of matters.

“The most successful companies are run by individuals who acknowledge what they don’t know and seek the counsel of others,” says Stephen Christian, Managing Director of Kreischer Miller.

A board of directors can fill a knowledge gap in a business — if the owner recruits the right people and interacts with the board regularly. Smart Business asked Christian for advice on choosing advisors to maximize a board’s success.

Why utilize a board of directors?

Business owners are often caught up in their own worlds, dealing with the issues of the day. Unfortunately, all too often, the bigger, more strategic issues are relegated to the bottom of the list either because of time or lack of expertise. If utilized properly, a board of directors will provide quality, independent counsel on strategic initiatives and a forum for accountability in accomplishing tasks. In addition, a board can supplement internal skill sets, assist in resolving owner conflicts and provide credibility to the business in the eyes of outside stakeholders like banks and bonding companies.

What are typical issues a board addresses?

A successful board of directors advises owners on a variety of topics. At the broadest level, it assists in developing or validating the company’s mission and strategic direction, and managing risk within the organization. On a more basic level, the board may be involved with evaluating top management’s performance and their compensation, analyzing financing strategies and providing counsel on succession issues, which may range from attracting and retaining future leaders to selling the business. In essence, the directors will address any issue that affects the well-being of the organization.

What types of companies benefit from utilizing a board of directors?

Although most people associate a board of directors with public company governance, all companies, regardless of size and complexity, can benefit from utilizing a board. Owners of all levels of sophistication and functional backgrounds will find it advantageous to receive a fresh, outside perspective on what they are trying to accomplish. Why not take advantage of learning what has worked and what hasn’t through the experiences of others?

Who should serve on the board?

The easiest part is convincing owners to utilize a board. The hardest part is finding the right members. Typically, the best board members have entrepreneurial experience and strategic thinking capabilities, often found in business owners. These people have lived the decisions the owner is currently confronting. A board member may or may not have worked in the same industry. Both perspectives are valuable. If an owner lacks a marketing background or needs help boosting sales, he or she may seek a member with proven track records in these areas. If specific industry related insight is required, an owner will seek an individual who is respected in the field. Choose members who can fill a need. Also, be sure this person has an interest in the process and cares about the success of the business. A board should include a combination of members from inside and outside the organization and should consist of an odd number of people in the event a plurality is required.

How does a business owner find quality candidates?

Networking. Business owners should let people know that they are looking for board members, but be specific as to the qualities desired in a candidate. In particular, talk to accountants, attorneys, bankers and other professional associates. These are people who best know the business.

How can a business owner maximize success with a board?

Managing a board of directors is a time-consuming process. If done right, the value of the board will far outweigh the cost. There are certain ground rules that, if followed, will provide an environment for the board to reach its maximum potential. Meeting dates should be strictly adhered to — members are busy people and will have little tolerance for canceled or rescheduled meetings. A substantive agenda and concise, high-quality information should be forwarded to the board members well in advance so that it may be reviewed and digested. A well-organized, prepared chairman is a must so that all parties involved can make maximum use of the time together. Keep an open mind to others’ suggestions. And, finally, a matter many boards struggle with, have the courage to replace non-performing members.

STEPHEN CHRISTIAN is Managing Director at Kreischer Miller in Horsham, Pennsylvania. Reach him at or (215) 441-4600.

Monday, 26 March 2007 20:00

Creative executive compensation

Wanted: A CEO who can wear 12 hats, increase sales 18 percent and double the company’s $50 million revenue. Must have deep experience in the field and a reputation as an aggressive growth leader. Competitive salary.

Companies that adopted conservative hiring practices several years ago are now on the hunt for top executives to propel their businesses to growth milestones. Recruitment for C-level players takes longer, requires tireless interviews and much more due diligence since corporate scandals turned on companies’ personnel radars.

But at the negotiation table, top execs are promised more total compensation than last year; more short- and long-term bonuses, fringe benefits like technology, and robust health plans. Base salary is just a starting point.

“Those executives know if they take risks and turn a company around, they will be compensated for their efforts,” says Tyler Ridgeway, director of the executive search practice (Human Capital Resources) for Kreischer Miller, Horsham, Pa.

Cash compensation for top executives was 30 percent more in February 2007 compared to February 2006. Cash compensation includes only base salary plus short-and long-term bonuses.

Smart Business talked to Ridgeway about compensation trends and the innovative ways corporations are rewarding their executives.

Why are companies paying top executives more today?

The marketplace is changing. Companies dedicate more time and energy to locating the right people, and they must pay to attract and keep them. For example, in years past, the interview processes were shorter. After hiring a CFO, the executive team would wait a few months before they trusted the executive enough to bring him or her into their management team’s inner circle. Today, companies can’t afford that ramp-up time. They need a leader who can hit the ground running. As a result, you see longer interview processes. Since companies feel that they know the executives better after a longer interview process, they are more willing to provide an attractive salary with bonuses rather than waiting out an initiation period.

Second, companies are better positioned in a more secure economy to make changes in their top-executive lineup. Many companies played it safe from 2001 to 2004, when the economy suffered a blow from Sept. 11. A wait-and-see attitude has shifted to a growth-hire mentality. Those companies are ready to make immediate changes and locate executives who can ignite growth.

Also, because many baby boomers are retiring, the employment pool is suffering a talent gap. There are fewer executives with the deep experience that major corporations seek. So when a company has an opportunity to recruit a top executive that it perceives will take the business to the next level, competitive compensation, bonuses and benefits are critical to seal the deal.

What sort of compensation attracts top-level executives?

We’ve seen a change in attitude. For example, executives are not simply saying, ‘I expect $150,000.’ They understand they are entering a growth environment and they will earn a good salary. But, if they are willing to take some risk to grow the company, they know they will be compensated for their efforts. It is a risk-reward strategy. If a company wants to grow from $50 million to $100 million, there is risk involved for the executive. How will he be rewarded for performance? Today, executives desire both short- and long-term bonuses, which along with base salary, comprise ‘cash compensation.’

For example, let’s say a company is hiring a VP/operations. A top candidate may accept a lower base salary, agreeing to $150,000 rather than insisting the company match his or her former $170,000 salary. But the company must be creative and offer the candidate a signing bonus, and short- and long-term bonuses based on performance. In addition, they should also contemplate creating a VP executive bonus pool. If the company exceeds performance goals, a chunk of revenue is set aside for the VPs to split evenly. This is one example of creative long-term bonuses.

Are companies providing top executives with more fringe benefits as well?

Base salaries are not necessarily increasing significantly. However, we are seeing more advances in total compensation. Total compensation equates to providing anything of value to executives to retain them and keep them happy. This might include club memberships, meal allowances, medical coverage and company cars. In addition, as technology advances, companies are giving more than cell phones to their executives. They want them to have cutting-edge PDAs and lap-tops. Also, health care coverage is extremely important to employees and their families and viewed as a part of compensation.

TYLER RIDGEWAY is director of the executive search practice for Kreischer Miller, Horsham, Pa. Reach him at or (215) 441-4600.

Monday, 26 March 2007 20:00

Banking made easier

Banks today offer convenience services designed to take “banking” off business owners’ plates.

“Banking should never be a burden on the business owner,” says Kathy Fausnight, district sales manager for Sky Bank in Stark, Wayne and Tuscarawas counties. “Going to the bank should never be a chore — it should be a pleasure.”

Besides availability, standout customer service and a variety of products to meet a business client’s evolving needs, your bank can provide ancillary services and provide a one-stop-shop experience. From insurance to real estate, “the list goes on,” Fausnight says.

“Bankers should be available on clients’ terms,” Fausnight says, noting that office and cell phone numbers as well as e-mail addresses should all be listed on bankers’ business cards. The goal is to show that we will keep in touch with the client on a regular basis. However, the client should not hesitate to call their banker; we are available when needed.

Smart Business asked Fausnight for insight on what it means to be a convenient bank today.

How has a demand for convenience changed the way banks structure their services?

It’s important for clients to feel like they have a relationship with their banker. They have to see that value and it has to be evident in the services a bank offers. Your banker should offer to accommodate you by visiting your office. Many banks will call on clients and cater to them in their environment, which saves business clients time and allows them to focus on their roles rather than ‘taking a break’ to go to the bank. This is just one way a banker can fulfill a convenience proposition. Your banker should be someone you can reach at any point in time to get answers immediately.

Does that mean traditional bankers’ hours don’t apply these days?

While financial centers may maintain traditional hours, bankers should be available whenever clients need them. If your hours are 7 a.m. to 7 p.m. and you have a question, you should be able to reach your banker via e-mail or cell phone — whatever means of communication is most convenient for you. If you need a banker to stop in to your office, he or she should be willing to do this.

What about convenience in financial centers?

When you visit a financial center you should be greeted immediately and waited on quickly. Time is so extremely valuable to everyone. The precious time you spend away from your office to visit the bank should be respected with efficient service. It’s important that you feel a warm welcome and that your bankers truly understand your needs and your business. A personal touch is so important. The only difference between banks is the people who work there and the delivery of client service expectations. That is why each bank must strive to provide exquisite client service — the ‘wow factor.’

What questions should a business owner ask before entering a relationship with a bank?

You should interview your choice of banks and or bankers and owners should ask for commitments. Ask these questions: What product and services can I expect from you? How can I reach you? What is the response time? What are you willing to do for me above and beyond what other bankers will do?

Also, you want a local decision-making bank. Convenience is lost if you have to go through 10 layers of bank personnel for a loan approval or to resolve other issues.

Finally, gauge from your conversation whether the banker takes interest in your line of work. Does the banker ask simple questions like ‘How’s business?’ and when you answer, does he or she truly listen? Ask the banker if he or she is familiar with your industry. You should partner with someone you trust as an adviser.

What above-and-beyond services do banks offer today that provide convenience to business owners?

A bank should be a one-stop shop for all your needs: checking/savings products, loans and lines of credit, cash management, investments, 401(k) and retirement plans, employee benefits, insurance, credit cards and mortgage services. For example, insurance is an ancillary product that banks offer, and many business owners don’t realize this. Financial institutions should be able to offer health care benefits plans for the business owner and their employees. They should help the business owner develop or review their procedures, and policy manuals can be reviewed and even developed for a business. Bankers should offer insurance for equipment, vehicles, real estate and most other types of collateral for a loan or a lease. Also, banks should offer an insurance division within the bank that works with several independent carriers and will arrange for an expert in the field to discuss the clients’ needs so they can appropriately choose products.

KATHY FAUSNIGHT is district sales manager for Sky Bank in Stark, Wayne and Tuscarawas counties. Reach her at (330) 628-8668 or For more information, visit

Wednesday, 28 February 2007 19:00

Exit strategies

Have you thought about the end? The meaning of life after the business is sold? Who should get the company, and when will you be ready to pass the hat to a family member or sell what is, for many entrepreneurs, “the third child”? Planning how you will exit your business is just as important as strategizing how to launch a company and grow it.

“Everyone must exit their business at some point,” says Joel Guth, an advisor with Citigroup Global Markets Inc.’s Citigroup Family Office in Columbus. “You either sell it, pass it on to family, or you pass on. Planning allows you to pick the best option. The sooner the better.”

Smart Business spoke to Guth about succession options and executing the planning process.

When is the right time to start considering a succession plan?

Actually, when you start the business, you should already be thinking about how you are going to exit. Certainly, if you are three to seven years away from retirement or at least want to reduce your involvement or risk in the business, it is time to have a serious conversation with your advisors about how you will exit, what your options are and what you want to accomplish. The sooner you plan, the greater the potential you have to enhance the after-tax value of the sale proceeds or reduce your tax liability.

What are the first conversations concerning succession that you have with business owners?

The first questions I ask are, “What are your business goals? Do you want to enhance the value of your company and sell, do you want to pass it on to your children, or do you want to sell it to key employees?” When you plan, you get to decide who will be your partner in your exit strategy.

Next, we discuss personal goals. Are you at the point where you are truly ready to quit working? What role do you want to play when you exit? Will you walk away or maintain a position in the business for a few years? Or do you want to retire from the business and start something new? If we understand the vision of the owner, we can help him or her design options that are in line with this vision.

Is the risk of owning one’s own business a concern?

Business owners have an extremely concentrated investment. The business may be worth $50 million and they might be worth a total of $55 million — so more than 90 percent of their wealth is tied up in one investment.

In your middle to late 50s, you may be concerned about that risk. If the owner wants to diversify some of the concentration risk, there are options. One option is to consider bringing in a private equity firm and selling a piece of the business. This may allow an owner to take a considerable amount of money out of the business, but continue to run the business and still maintain an ownership position.

What are the advantages and disadvantages of selling the business to a private equity firm?

Private equity firms are more aggressive now than they’ve ever been in acquiring middle-market companies. Institutional investors are placing record dollars with private equity funds, therefore expanding those funds’ ability to target middle-market companies. They work with the owners and management to leverage the resources of the private equity group to grow the company and make it more profitable. They then sell the business within a short period of time — three to seven years, usually.

The advantage for business owners who want to continue to work and reduce their risk is they can sell 60 percent to 80 percent of the company and still have ownership. This percent ownership may be a significant piece of the value when the equity firm sells the business.

After determining personal and business goals, what next?

The third piece is timetable. The timetable is a function of your personal goals, business goals and the economy. You don’t want to exit during a lull in the economy because you will take a reduced value for your business.

Also, some industries are more cyclical than others. You must consider factors like interest rates and the M&A market. Ideally, you want to design the exit that fits your goals and be able to pick the timing of your sale.

Citigroup Family Office is a business of Citigroup Inc., that provides clients with access to a broad array of bank and nonbank products and services through various subsidiaries of Citigroup, Inc.

Citigroup Family Office is not registered as a broker-dealer nor as an investment advisor. Brokerage services and/or investment advice are available to Citigroup Family Office clients through Citigroup Global Markets Inc., member SIPC. Guth is a registered representative of Smith Barney, a division of Citigroup Global Markets Inc., and he has qualified to service Citigroup Family Office clients.

JOEL GUTH is an advisor with Citigroup Global Markets Inc.’s Citigroup Family Office, in Columbus. Reach him at (866) 464-2750.

Wednesday, 31 January 2007 19:00

Consolidation inspires change

Consolidation in the banking industry leaves many business owners guessing whether the same relationship they established with their bankers will change.

Maybe the bank you chose not to do business with years ago buys the bank you trusted for years. Or perhaps the bank you thought focused on commercial and industrial businesses isn’t interested in reaching out to these customers. “As banks consolidate, many customers re-evaluate their banking relationships,” says Craig Johnson, president and CEO of Franklin Bank in Southfield. “Mergers often present shopping opportunities, and community banks that have a stronger connection with the local business environment become attractive and viable alternatives.”

Smart Business asked Johnson to discuss how to shop smart if you are reconsidering your banking relationship and what advantages community banks provide to local business owners.

How do large bank consolidations affect business owners?

Along with name changes come policy, procedural and people changes. Generally, as banks get bigger, customers have less access to decision-makers. You see a fallout of people who decide to leave for other financial institutions. This turn-over makes most customers feel uncertain about their relationship with the bank, so consolidation often causes them to step back. If they have been thinking about shopping other banks, this might be the push that leads them to consider other options.

What initial questions should a business owner ask the bank following an acquisition or merger?

It’s important to find out how the consolidation will affect policies and procedures. You need to ask tough questions. Meet with your banker face-to-face and ask him or her to explain the philosophy of the new organization. Will there be changes in the handling of deposit accounts, funds availability, sweep features and other services? What is the bank’s new focus? Ultimately, you want to ensure that the consolidated organization is still the best bank for your business.

What advantages do community banks provide for business owners?

The hallmark of community banking is access. Decision-making for loans or other services is local. You can talk to the president of a community bank; you can directly call or e-mail managers. On the other hand, as banks get bigger, their policies and procedures tend to be more defined and restrictive.

Community banks are different. If you have a strong relationship with your local banker and your business is struggling, a community bank is more likely to stick by you until you ride out the tough times.

What are some community banking trends you notice in the Detroit market?

A number of start-up community banks launched in the last 24 months or are on the drawing board now. There are talented banking professionals in the area who don’t want to be a part of a larger, consolidated organization. So they go out, attract capital and seek charters to start community banks.

What you will see in some cases are banks that serve specific niches, such as ethnic populations. There is a bank seeking a charter that will focus on Asian and Indian customers. That is a narrow, but solid, focus. Of course, that is just one example of how community banks can serve niche populations. More generally, a community bank may focus on the small business owner or a certain industry sector. Larger, more established community banks provide the same products you’d find at a large bank, but with more flexibility and personal service in most cases.

What should business owners consider if they are shopping community banks?

First and foremost, look at where you are in the life cycle of your business. Are you a start-up organization that needs capital to finance your entry into the marketplace? Are you an established company that needs a significant line of credit to back operations upgrades and equipment purchases?

One down side to start-up community banks that have not been in business for long is that they tend to have a fairly limited amount of money they can lend per customer, and if they do it right, they are fairly conservative with those loans.

Can community banks grow and accommodate an aggressive business’s commercial banking needs?

Absolutely. The key is to make sure you position yourself with a community bank that can service all your needs and has a positive track record. Determine the senior advisers and investors, and ask about the bank’s mission. What type of customer does it cater to, and do you fit that profile?

Because community banks understand the local business environment, their associates often serve as trusted advisers and champions for their customers.

CRAIG JOHNSON is president and CEO of Franklin Bank in Southfield. Reach him at or (248) 386-9860.

Wednesday, 31 January 2007 19:00

Business taxes

Is your business international? Many companies, especially those just entering foreign markets, must think twice when answering this question. Business owners may overlook transactions made across borders, whether those are as close as Canada or far away as Japan. That is, until a tax wake-up call costs them profit dollars.

“When a company is notified that it will face an IRS audit in the U.S. or a foreign country where it is doing business, this can be a scary moment,” says Michael Heiman, associate director of SS&G Financial Services, Inc. in Solon.

You can face substantial penalties for noncompliance if you fail to report overseas transactions, and you may not be availing yourself of tax advantages, Heiman adds. “There is a lot of money to be saved in the international arena. The reason for that is because there is a significant potential for double taxation if an international business does not consult with a professional and plan carefully.”

Smart Business asked Heiman to provide a checklist of compliance considerations and offers suggestions for mitigating tax costs.

Who is affected by overseas tax rules?

Any company with an international transaction could be subject to some important international tax rules. A transaction can include importing or exporting at the simplest level. When a company ventures overseas and either establishes an office or subsidiary — or even sends employees overseas to work — these transactions can introduce significant international tax implications.

What is one of the first concerns you address when you consult with a business that has overseas transactions?

We take a look at their entity structure, from the U.S. and foreign perspectives. Then we pick the type of entity that gives them the best tax advantages and will simplify their reporting. A company that establishes itself overseas can elect to set up a foreign corporation in that location, or it can set up a U.S. branch. The taxation of those two structures is different. For example, foreign corporations may defer their U.S. taxes until their earnings are repatriated into the U.S. On the other hand, earnings of a foreign branch are taxed in the U.S. immediately, and branch losses can be used to offset income earned in the U.S.

Depending on your business results overseas, you may want to defer income or accelerate losses in the U.S. Or, if you pay a lot of taxes in a foreign location, you may want a foreign tax credit in the U.S. so you don’t get double taxed. There are many complexities. It pays to review your options with a professional.

What about compliance concerns? What must businesses file on tax returns?

Business owners need to report foreign bank accounts, file tax returns in all of their foreign jurisdictions, report foreign operations to the U.S. and claim their foreign tax credits in the U.S. They must comply with U.S. withholding requirements on payments to foreign persons. Finally, they may need to help their employees file tax returns overseas if they send workers out of the country often to conduct business.

When planning, what are the first areas you address?

When setting up a business overseas and in the U.S., owners must make sure that the transactions between controlled parties are stated on an arms-length basis. What that means is that intra-company prices must be fair, and taxpayers are required to prove it. You cannot sell a product to a foreign subsidiary for a ridiculously low price and shift the profit overseas where a tax rate is lower. The taxing authorities will require proof that prices in the U.S. and overseas are comparable to what independent parties would charge.

How can dividend planning be beneficial?

The timing of when to bring profits back to the U.S. can greatly affect your overall tax liability. For example, before making decisions about dividends, you should compute how foreign tax credits may offset income tax in the U.S.. Timing is important so that you avoid paying more taxes.

Can tax treaties help companies gain favorable tax rates on income?

Many countries have tax treaties with the U.S., and some will allow companies to pay dividends to the U.S. without withholding taxes, provided that the foreign business is substantially wholly owned by the U.S. parent company. Ordinarily, when you set up a subsidiary in a foreign country, you pay a dividend to the U.S. and withhold tax money so the foreign government can collect income tax. In a tax treaty situation, you may be able to pay a dividend with no withholding from the foreign country.

MICHAEL HEIMAN is associate director of SS&G Financial Services, Inc. in Solon. Reach him at or (440) 248-8787.

Sunday, 31 December 2006 19:00

Phishing for information

When is the last time you received an e-mail notice in your inbox requesting personal information — a PIN number, user ID or password that you wouldn’t surrender to your reliable assistant, let alone some stranger over the Internet? But wait — the notice originated at the bank. It bears the bank’s logo and colors, and it links directly to the bank’s home page. It must be legitimate, right?

“In the last five years, Internet fraud has become more sophisticated and prevalent,” says Craig Johnson, president and CEO of Franklin Bank in Southfield. “Fraudulent attempts to get customer information through means like telephone and letters have shifted to the Internet because it is quicker and a lot more difficult to detect.”

Called phishing, criminals dupe individuals into sharing personal data by sending out convincing e-mails that lead consumers to Web sites masterfully created to resemble those of banks and financial institutions. Phishing is one of the fastest growing forms of consumer theft in the United States. If you’ve used e-mail to conduct business in the last five years, you’ve probably been a phishing target.

Here, Johnson discusses the implications of sharing private information over the Internet and provides information that will help you discern whether that ‘fraud alert!’ e-mail in your inbox is a scheme.

How can you tell whether an e-mail is fraudulent when the logo looks exactly like a bank’s and the e-mail even links to the bank’s home page?

Banks are frequent targets of phishing, and con artists are well-versed in the technology required to duplicate bank home pages and create e-mail notices that look so legitimate that even the most astute business owners are duped into believing that requests for security information are valid.

But banks would never send their clients a notice requesting a PIN number, password or user ID. Never. You immediately know that these requests are fraudulent because banks simply do not ask for this information over the phone, by mail, or over the Internet.

What are common ways that con artists ‘go phishing?’

What we see most often is when con artists duplicate our Internet sign-on page and send out notices via e-mail. These are blanket notices claiming to be from Franklin Bank, and they are sent out to millions of e-mail addresses. They say something to the effect of: For security purposes, we need you to verify your user ID and password. But when you enter your user codes, that gives the scammer access to your accounts. Within minutes, they have your user ID, password, Social Security number, account numbers — all your personal information.

How do banks respond to fraudulent Internet notices?

We have to be much more vigilant about monitoring that type of activity and more aggressive in enforcing our policies. For example, we recently dealt with a fraud e-mail, and when we contacted the service provider, it was located in Bangladesh. Even when you shut down one of these fraudulent service providers, they will move on to another scam. The best thing business owners can do is to train their staff to detect phishing and limit access to account passwords.

How many people really assume these fraudulent e-mail notices are valid?

Because of the high quality of material, the e-mails actually look like they are from the bank. People assume we are trying to gather information and once they type in their passwords, they’ll be able to access their accounts online, no problem. But instead, the con artists wipe you out — your money is gone.

How can those who bank online — and that includes most business owners today — protect themselves from exposure to Internet fraud?

If you complied with an e-mail request for personal information, you feel you are victim of a fraud, and your account balance shows it, then you have approximately 60 days to make a claim of fraudulent activity on those transactions. Go to your bank and fill out an affidavit. The bank will decide whether to award you with immediate conditional credit pending an investigation. This decision will depend on the claim. At Franklin Bank, any claim that exceeds $500 requires investigation. The dollar limit will vary at different financial institutions.

CRAIG JOHNSON is president and CEO of Franklin Bank in Southfield. Reach him at or (248) 386-9860.

Friday, 24 November 2006 19:00

Wealth 101

The laundry list of acronyms and lingo for financial products can overwhelm the most astute business owner. How about a grit or an eyelet; add Q-tip, LLC and GST transfer; and don’t forget a side of CRT. What?

“Having a lot of wealth is complicated,” says Joe Wojcik, senior vice president and regional manager at Sky Bank in Akron. “The key is client understanding. I view myself as more of an educator than anything.”

Smart Business asked Wojcik to discuss why your wealth management officer should be a trusted partner and teacher who steers you toward the best solutions for your assets.

How does a wealth management adviser translate products and options to busy business owners?

A wealth management adviser looks at all of a client’s variables and helps him or her understand and choose the best financial options. Variables include stocks and bonds, real estate, retirement benefits, insurance, closely held business interests and various types of investments. A good wealth management officer will offer investment advice; help with income tax planning and estate and trust planning; provide risk management solutions; and maximize charitable gifts.

The best wealth management advisers will invest their time and expertise to take a comprehensive look at all of these variables. If the bank offers a solution that fits, the adviser will arrange the transaction. But the bank’s product menu should not set boundaries. If the bank doesn’t offer an insurance product, a trusted wealth management officer will look outside the organization and find the right solution.

Can you expand on what it means to be a trusted wealth management officer?

‘Fiduciary’ comes from the Latin word ‘faith.’ A fiduciary is a person who is extremely loyal and does not put personal interests above that loyalty. Your wealth management officer should act like a fiduciary, provide valuable advice and build a lasting relationship with you, always putting your interests first.

How does this partnership work in relation to accountants and attorneys?

Since tax is often 40 percent or more of the equation for successful professionals, true wealth management requires substantial tax expertise in cooperation with the client’s tax professionals. You can’t make a decision on financial issues without considering taxes. The key for wealth management officers is being able to cooperate, coordinate and work as a team with the accountant and attorney.

You can think of us as the front-end of the financial advising process. We narrow down options for our successful clients, and then we pull in the accountant and attorney to gather their expertise. From there, we as partners help the client implement the determined solution.

Will you elaborate on how managing wealth is an educational process?

Owners who are successful often need a lot of help with financial issues like succession planning because they have always been so focused on their businesses. We explain various strategies to help them realize their goals. We ask the tough questions they might not think about because they are too busy with day-to-day business activity.

For example, maybe a business owner doesn’t stop to think about how the next generation will impact the success of the operation. We help our clients and the generation that will succeed them figure out a reasonable structure to be fair and equitable without interfering with the business’s long-term success. We carry on a discussion with the next generation. We connect with them and educate them on what they will face, such as issues that surround siblings who work in the business versus siblings who do not.

What lessons have your business owners taught you about wealth and success?

Going back to the role a fiduciary plays, integrity, confidence and respect are important characteristics for any adviser you trust. And I find that business owners who display these same traits are the most successful.

Those you can trust with a handshake are immensely successful because they are easy to do business with. So when I meet clients who turned $500,000 into $10 million, their common trait is integrity. It’s the opposite of what you might expect, with scandals like Enron painting a cold portrait of how business owners realize success.

JOE WOJCIK is senior vice president and regional manager for Sky Bank. He specializes in wealth management and holds a CPA and master’s degree in tax accounting. Reach him at (330) 258-2360 or For more information, visit