Kristen Hampshire

Wednesday, 26 March 2008 20:00

Information dashboards

The days of departmental reports as thick as novels and endless scrolling through electronic documents are over for businesses that adopt an information dashboard. How effective is a paper report, really? By the time managers compile and distribute information, it is outdated. And while electronic reports save trees, they are tiring to navigate. The solution is a reporting tool that compiles key performance indicators on a daily basis.

“The next generation of reporting is summarized, concise and customized for each user,” says Sassan S. Hejazi, Director of Technology Solutions at Kreischer Miller.

In many ways, an information dashboard is like the dashboard in your car. It displays key information and allows the user — whether CEO, manager or employee — to gauge his or her performance. “That information is presented in real time,” he says.

Information dashboards can monitor sales, production, accounting — any business functions that managers want to track.

Smart Business discusses with Hejazi how these systems work, why they benefit businesses and how to get started.

How does an information dashboard work for businesses?

It is always a struggle for managers and executives to translate how day-to-day activities contribute to the business’s overall vision and strategy. A dashboard allows employees and managers to gauge their daily performance. It also enables managers and C-level executives to evaluate this data in terms of what the company must accomplish to achieve its goals. The hallmark of an information dashboard is its ability to siphon information from other software programs — pulling sales data, production information, accounting details, etc. — to produce a convenient report that appears like a ‘dashboard’ on the computer. Information can be compiled into various types of graphs; the dashboard is customized for each person. For example, a financial administrator’s dashboard will reveal key information about receivables or payroll. A CEO’s dashboard filters all information from managers’ dashboards into a report so he or she can take the pulse of the entire business at any time.

What type of business will benefit from an information dashboard?

It is imperative for every organization to manage its business performance to achieve goals and objectives. This is true for nonprofit and for-profit businesses of any size, in any industry. If you do not know where you stand today, how will you make changes in the business to improve and grow? Any business that has various departments or divisions by scale and size will also benefit from information dashboard capabilities. Top managers and executives can use this software tool as a way to regularly check performance so they can lead their departments. For example, in a manufacturing company, managers can use information dashboards to stay on top of orders, track the productivity and yield per employee or department, and report on accounts receivables, cash flow, etc., and see a daily summary of all activities.

How does a business get started?

Buying the software is the easy part. You’ll choose a program that fits best with your technology platform. Your IT manager or a consultant who understands information dashboard systems can guide you toward the right software. But the program will be useless if you do not do some preliminary soul searching to evaluate your business’s goals and key performance indicators. What do you want to measure? Where does that data reside in your existing system? Are you already tracking this data, or will you need to devise a system for collecting that information? What does each manager need to know about his or her department’s performance on a daily basis? Once the information dashboard produces daily reports, how will managers act on that data? Will they design performance-based incentives for employees? How will this data reporting be used to propel the business toward its overall goals? All of this planning precedes software installation. It goes back to the old rule about input and output.

How can an information dashboard affect the culture of a company?

Daily reporting makes everyone in an organization aware of his or her performance and how his or her contribution directly relates to the company’s success. Managers can see how their departments measure up against the goals set for them. Everyone knows where he or she stands on key performance indicators. This can help unify employees’ efforts toward achieving established goals. The daily report is a progress checkpoint — and employees can determine how they can work smart to stay on target. With performance information constantly available, there are no surprises. If used correctly, information dashboards can be a basis for incentives. Most companies have annual reviews for employees, but the information managers share during these meetings is usually after the fact. It’s too late for employees to change or improve. With real-time data, managers can continually review performance and keep employees informed.

Considering the significant investments businesses make in technology and data systems, an information dashboard is one way to harness this investment and use that data to improve everyone’s performance.

SASSAN S. HEJAZI is Director of Technology Solutions at Kreischer Miller in Horsham, Pa. Reach him at or (215) 441-4600.

Sunday, 24 February 2008 19:00

Aiding acquisitions

If you are expanding your company, looking to acquire another business or planning to purchase equipment to manufacture a new product, you may consider the lending options available through the Small Business Administration (SBA). Many mid-sized corporations benefit from SBA lending vehicles, which are generally structured with lower down payment requirements, competitive rates and longer terms.

“If a $10 million company with 100 employees wants to acquire a smaller company, the SBA is a lending venue for those types of transactions,” says Robert H. Bruno, vice president and senior SBA lending specialist for Huntington Bank in Cleveland and Akron.

“Many times, business owners think SBA loans are only for those who want to start up a business or buy real estate,” Bruno adds.

This is true, he says, but business acquisition, equipment financing and obtaining lines of credit to fuel growth are also reasons why various companies turn to the SBA for loans.

Smart Business spoke with Bruno about ways middle-market companies can utilize SBA-backed loans.

Who can qualify for an SBA loan?

The general rule with SBA lending is, if there is no conventional credit available elsewhere, then SBA is a legitimate vehicle for gaining capital to fund certain expenses. What does ‘available credit’ mean? In a bank’s eyes, certain industries are considered higher risks because of a historically high default rate in that industry or because the real estate they acquire for their operation — say a hotel or restaurant — is considered ‘special use.’ To banks, special use translates to escalated risk; and banks don’t like risk. Therefore, credit is not made available to those perceived high-risk candidates. Instead, to obtain a loan, those business owners would need a guarantor as a sort of ‘insurance’ for the bank. This is where SBA programs, such as 7(a) and 504, enter the picture. Banks recognize that SBA loans are secured investments in the secondary market with a guarantee from the government. SBA loans allow business owners to acquire property, capital and even other businesses. These lending vehicles aren’t just for startups or small companies. In fact, many mid-sized corporations can attribute their growth to the capital they obtained through SBA-backed loans. Medical practices, professional firms and manufacturing operations are candidates. Eligibility limits vary and depend on a company’s revenue and industry.

What are advantages to SBA loans versus conventional loans?

First, SBA loans allow people who originally thought they could only lease equipment to consider purchasing instead. The SBA can usually provide longer terms for loans on capital equipment. On some capital equipment, an SBA loan will go up to 15 years for amortization and term. Also, the SBA generally offers more favorable rates than conventional loans and requires a lower down payment.

For example, if you were to purchase general purpose real estate, a bank would most likely demand 20 percent down. For an SBA loan, you can put down 10 percent. This is a clear opportunity for business owners who do not want to tie up cash flow in a down payment, yet want to invest in property, equipment or other capital to grow their businesses.

What are the key differences between an SBA 7(a) and 504 loan?

Essentially, 7(a) loans are used for acquisitions, working capital and real estate. An offshoot of the 7(a) is the SBA Express, for lines of credit and smaller loans under $350,000. 504 loans help finance fixed assets, and 7(a) provides loans up to $2 million. SBA loans are always personally guaranteed by the principals of the business, and the 7(a) loan is guaranteed up to 75 percent to the lender by the SBA, with the exception of the Express program. The 504 program requires approval from a lender and a certified development corporation, which expedites the loan application to the SBA. You can access more capital with the 504 program, but it is a two-part loan that involves a first mortgage, or loan, from a lender and a debenture to back the rest of the loan. All programs are ideal for business owners who lack sufficient collateral to meet conventional lending guidelines. Also, there are no balloon payments on SBA-backed loans.

What about the time for approval?

Time and paperwork are two misnomers associated with SBA loans. Acquiring an SBA loan should not be a long, drawn-out process, especially if you deal with a preferred lender. With a preferred lender’s jurisdiction to approve and underwrite 7(a) loans for up to $2 million and Express lines of credit for up to $350,000, the process for an SBA should take no longer than a conventional loan. A preferred lender generally can close an SBA 7(a) loan in as quickly as 30 to 45 days. Sure, the paperwork is slightly different, but the steps a banker guides you through as he or she reviews your business plan and matches you with an appropriate lending vehicle are the same. You can contact the SBA District Office in Cleveland to learn names of bank personnel who specialize in SBA lending. An SBA specialist will help you decide what SBA program is most appropriate for your needs and help you prepare necessary documents so you can ‘pass go’ and gain capital without running into obstacles.

ROBERT H. BRUNO is vice president and senior Small Business Administration (SBA) lending specialist for Huntington Bank in Cleveland and Akron. Reach him at (216) 901-4729 or

Tuesday, 29 January 2008 19:00

Backup and recovery

You update your business software, launch new technology and roll out advanced applications to be sure

your company’s IT environment is cutting edge, but have you stopped to consider how you will back up your systems? What happens when accidents occur and data is lost?

“As organizations implement new servers and applications, and add more storage to support these systems, their backup and recovery is not necessarily being kept up to date,” says Geoff Hanson, practice director for Pomeroy IT Solutions in Hebron, Ky. “You want to know where the data is that you have to recover, you need processes and procedures in place to recover that data, and you want to do all of this in a timely fashion with zero data loss.”

As privacy issues become more important to businesses in the wake of security regulations, this backed-up data must be stored safely, so it can’t be accessed by unauthorized users. Today, disk storage and virtual tape libraries are ways to update backup and recovery infrastructure.

Smart Business asked Hanson to discuss how to protect the data that is critical to carrying out day-to-day business with an efficient backup and recovery system.

Traditionally, how have companies backed up and recovered data from their computer systems?

Until recently, most companies were using tape media to back up and restore data. A company would back up storage onto tape, and then that tape was taken to an off-site location for protection. In the event a company had to recover data, it had to wait until the tape was retrieved from off-site storage. Backup and recovery was a very manual process. There were days and/or hours associated with a company’s recovery time. Today, companies are moving toward disk-to-disk storage instead of tape. Disk provides quicker recovery capabilities and virtually zero data loss. It’s important to note that today’s backup and recovery software applications are relatively mature. It’s the infrastructure to support the software (the tape) that hasn’t necessarily been kept up to date.

What infrastructure is available today that speeds up recovery time?

First, companies can opt for a virtual tape library (VTL) appliance. This infrastructure allows you to move your backup strategy to a disk-based solution. Many companies use tape for their backup solution. A VTL replaces the tape device with a disk-based solution. There is minimal change in the backup process. The same backup software can be used; the information is simply transferred to disk instead. Recovery is faster because you avoid the lag time associated with tape media and the retrieval from off-site storage. Another approach is disk-to-disk-to-tape backup. Companies are replicating their disk arrays to either local or remote disk arrays and then backing up the data to either VTLs or tape.

What are other advantages of disk storage?

Your backup is only as good as the last piece of information that was backed up. Some companies only back up at night on a 24-hour cycle. If they experience a hardware malfunction and lose their data, they must recover information that was current as of the night before, therefore losing a day’s worth of work. That can represent a serious loss in productivity and revenues for some businesses. People are moving toward disk storage because they can restore information quickly and improve recovery time.

What should a company consider in choosing an appropriate backup and recovery system?

The first question is, how much time can you afford to be down? If you are a financial company and every minute a server is down you lose money, you can’t afford to be down at all. In this case, you need a high-availability solution and a backup and recovery infrastructure to support uptime for your critical applications. Also, you should review your current best practices for managing data. How will you meet all regulations and requirements? What information has to be available to you at all times for you to be successful?

Can you talk more about security requirements? How does backup and recovery help businesses comply with regulations?

Companies are taking more notice to privacy due to regulatory and security requirements on their data and information. They are stepping back and asking how they can recover quicker with no data loss. Companies are moving toward data encryption for data at rest as well as data in transit. For example, hospitals must meet HIPAA requirements. When backing up medical files, this information must be secure regardless of where it is stored. Financial companies must also consider privacy issues in lieu of Sarbanes-Oxley requirements associated with data protection. So, it is important to architect privacy of content while implementing infrastructure for backup and recovery.

GEOFF HANSON is practice director at Pomeroy IT Solutions in Hebron, Ky. Reach him at or (623) 551-5771.

Wednesday, 26 December 2007 19:00

Investing assets after the sale

After the sale of a business, an owner “cashes out” with a lump of wealth that can be quite overwhelming. For the lifetime of the business, the majority of an owner’s wealth is tied up in that venture. Liquid assets were always poured back into the business for investment in capital improvements or to finance growth.

“It’s daunting to think about investing your life’s worth and your family’s entire fortune,” says Joel J. Guth, an advisor in the Citi Family Office at Smith Barney, a division of Citigroup Global Markets. “Owners must adopt a completely different mindset once the business is monetized.”

Smart Business spoke with Guth about asset management strategies after a business is sold and how to build a balanced portfolio with a variety of investment alternatives.

What challenges do owners face when confronting asset management planning?

First is the sheer amount of wealth that compounds during the life of the business. Owners must decide how to manage the ‘liquid’ after the sale of the business — assets that represent their pasts and futures. That’s a lot to process. Second, owners face more choices in how they manage their assets than ever before. Beyond the equity market, they can opt to invest in alternative investments. Third, most owners have difficulty setting realistic expectations for investment performance. By nature, business owners are driven and demanding. They expect results, and this tenacity is what helped them grow successful companies. But successful investors must think in the long-term.

How can an advisor assist owners?

An advisor who specializes in wealth management should be capable of explaining investment choices, detailing pros and cons and discussing performance in good and bad economies. Owners should develop an investment policy statement — a thesis describing how they will run their money. I urge clients to think about these questions: What investments are you willing to consider? What returns do you expect within what targeted timeframes? What risks are you willing to accept?

What strategies should owners adopt?

Ideally, owners should establish a portfolio of non-correlated assets. This involves investing in assets that move — show positive performance — at different times because of different factors. For example, an owner invests in stocks and real estate. When stocks are down, real estate generally performs well, and vice-versa. An owner who only invests in the public market is not spreading out risk.

What about alternative investment options?

There are many investment vehicles, but two alternatives that wealthy owners can consider are private equity and hedge funds. Private equity funds are managed by individuals who buy a controlling or majority stake in a privately held business. This type of investment is illiquid and long-term. But, if owners purchase private equity at below fair market value, they can compound their investment much faster than if they would have invested in traditional stocks. As advisors, we preach investing for the long-term, which is exactly what this vehicle requires.

Hedge funds are an underlying ownership structure — a partnership between the client and fund manager. Because these funds are structured, an owner relies more on the fund manager’s skill than actual market performance. They are not regulated by the SEC and are not for all investors.

How should owners evaluate their investment performance?

Owners should establish reporting mechanisms and set a timeframe for determining whether to make changes to their portfolios. Advisors should have quarterly discussions with owners, explaining market and economic trends. How do these factors impact their asset management strategy? What changes are necessary, if any? Ultimately, owners should evaluate the success of their investments over a business cycle, which is typically three to five years.

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

Citi Family Office is not registered as a broker-dealer or as an investment advisor. Brokerage services and/or investment advice are available to Citi Family Office clients through Citigroup Global Markets Inc., member SIPC. All references to Citi Family Office Financial Professionals refer to employees of Citibank, N.A. or Citigroup Global Markets Inc. Some of these employees are registered representatives of Smith Barney, a division of Citigroup Global Markets Inc., that have qualified to service Citi Family Office clients.

Citigroup Global Markets Inc. and Citibank, N.A. are affiliated companies under the common control of Citigroup Inc.

Alternative investments referenced in this report are speculative and entail significant risks that can include losses due to leveraging or other speculative investment practices; lack of liquidity; volatility of returns on transferring interests in the fund; potential lack of diversification; absence of information regarding valuations and pricing; complex tax structures and delays in tax reporting; less regulation and higher fees than mutual funds; and advisor risk.

JOEL J. GUTH is an advisor in the Citi Family Office at Smith Barney, a division of Citigroup Global Markets. Reach him at and (614) 460-2633.

Sunday, 25 November 2007 19:00

Estate plans: a three-step approach

Last month, we discussed how owners can devise cash-flow planning strategies to fund their lifestyles and long-term goals after their business is sold. The next step is planning how to transition the rest of the estate to other entities, whether they are future generations, charitable organizations or a family foundation. But, estate planning includes more than mitigating taxes or deciding how to distribute wealth.

“Whether owners plan for it or not, the emotional and social aspects of their capital are part of the estate they pass on to future generations,” says Joel J. Guth, an advisor in the Citi Family Office at Smith Barney, a division of Citi Global Markets. “It’s important to define a strategy so all categories of capital work together.”

Here, Guth discusses how owners can leverage discounted gifting mechanisms to help preserve the financial aspect of the estate and why owners should seriously consider the values and social impact future generations will carry on.

What are the main goals of estate planning?

There are three pots of capital owners pass on to future generations. First is physical capital, which is the financial piece: How can owners preserve their wealth and mitigate exorbitant estate taxes by leveraging discounted gifting techniques before they sell their businesses? The second is emotional capital: How will they structure their estate in a way to perpetuate their goals, values and vision for the family? Third is social capital: How do founders want future generations to impact the community?

When should owners begin estate planning?

Estate planning should begin at least three to five years before owners sell the business, but the sooner the better. The current tax rates are punitive toward estates. The marginal estate tax bracket, including state and federal taxes, might be as high as 50 percent. Owners who spend a lifetime accumulating their wealth want to retain as much of it as possible to pass to future generations. This can only be done by planning well in advance because prior to selling the company, there are several discounted gifting techniques that owners can leverage that may allow them to pass as much as 65 cents on the dollar to future generations — if the stock is privately held. If done correctly, the owner can use various trust strategies to pass private stock down to future generations at a discounted value compared to the real market value.

Why are the emotional and social pieces of estate planning so important?

Most owners start estate planning by asking the question: How can I mitigate or reduce tax costs? But there are times when they could reduce tax costs at the expense of what they really want to instill in their children. In an industry survey, wealthy families said it was much more important to pass their values to future generations than their money. But typically, owners spend a lot of time talking about how to pass on money and very little time discussing how they will instill the family values.

How should an owner start family conversations about the estate and future plans?

We are taught at a young age not to talk about money. But when owners are wealthy, the family recognizes that they are living a different, more privileged life. So it’s important

to have open dialogues that many families do not have concerning money and values. Do the children understand the family’s net worth? Do they understand the parents’ intentions for the money? If the owners of the estate plan to leave half of their money to charity, how will the children feel about that? Will the owners choose to support one child who has an entrepreneurial spirit, and will the other children feel like they still were treated fairly? These are all issues to consider as owners plan all three aspects of their estate so they can preserve their wealth and values for generations to come.

Citigroup Inc., its affiliates, and its employees are not in the business of providing tax or legal advice. These materials and any tax-related statements are not intended or written to be used, and can’t be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

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

Citi Family Office is not registered as a broker-dealer or as an investment advisor. Brokerage services and/or investment advice are available to Citi Family Office clients through Citigroup Global Markets Inc., member SIPC. All references to Citi Family Office Financial Professionals refer to employees of Citibank, N.A. or Citigroup Global Markets Inc. Some of these employees are registered representatives of Smith Barney, a division of Citigroup Global Markets Inc., that have qualified to service Citi Family Office clients.

Citigroup Global Markets Inc. and Citibank, N.A. are affiliated companies under the common control of Citigroup Inc.

JOEL J. GUTH is an advisor in the Citi Family Office at Smith Barney, a division of Citigroup Global Markets. Reach him at or (614) 460-2633.

Friday, 26 October 2007 20:00

Post-sale cash flow planning

Adjusting to life after the sale of a business requires a mindset shift. First, there is no longer a paycheck if the business was sold in its entirety — and if owners are still collecting a salary, it is likely modest in comparison to previous earnings. Secondly, time dedicated to company matters — which was most of the time — is now free and open for fresh pursuits. Expenses that were once run through the business now fall on personal tabs. Now that the business is sold, owners need a cash flow plan for life.

“There are transitions that are natural after the sale of a business,” says Joel J. Guth, an advisor with Citi Family Office. “Owners may move to a new area, buy a second home, travel extensively or purchase some kind of toy — a boat, a plane, cars.”

What’s more, they will want to continue gifting, perhaps establish a public legacy, and fund trusts for children or grandchildren. All this must be figured into a detailed budget so they can invest assets wisely to ensure adequate cash flow to fund the desired lifestyle.

In the first of four installments on planning after a business sale, Guth addresses cash flow planning strategies.

How do cash flow needs change once a business is sold?

Owners’ lives change dramatically after a sale. While running the business, they did not have as much free time to spend money. That explains why we may see clients’ spending increase 50 to 100 percent a year. They buy vacation homes and spend money decorating them. They buy toys they didn’t have time to use before. They can no longer run expenses through the business, so the $250,000 they spent each year maintaining their lifestyles jumps to $400,000 even without adding luxuries. All this adds up.

What common mistakes can owners make when managing their personal cash flow?

Many owners neglect to account for large expenditures, or they make spontaneous purchases, so they must sell assets to pay for them. On the other hand, it’s no better when owners are frugal but maintain so much liquid money that they don’t increase the value of their investments. Owners must strike a balance, and doing so requires an accurate estimate of cash flow needs.

Another common mistake is not anticipating the timing of cash flow needs. For example, owners who know they will make a significant gift each October should plan to have the cash on hand at that time. Otherwise, they will scurry to liquefy assets in time.

Finally, as previously discussed, owners must now cover personal expenses that they once ran through the business.

What are the first steps to creating a cash flow plan?

Owners must paint a picture of what their lives will be like after the sale. Will they spend half of their time in Ohio and the other part of the year in Florida? If so, will they fly privately between homes? What will property taxes cost in Florida? Will they hire professionals to manage landscape or housekeeping matters? How much will they donate to various charities, and will they fund trusts for other family members? What lifestyle expenses must they afford each year? What are their new hobbies, and how much will they spend on them?

This process is similar to creating an annual budget for a business, except the line items apply to the owners’ lives. The goal is to come up with a number, so owners can build an annual budget.

What asset management strategies should owners consider?

Some owners are worth nine figures and, because of their lifestyles, they keep their assets very liquid and short-term. Others are worth $25 million, and they keep little liquid because they don’t spend as much and prefer to grow principals. Owners must base asset management strategies on that magic number they figure after creating a cash flow plan.

Next, owners must consider their level of risk. Typically, clients will divide investments into two groups: one liquid or cash equivalent group to finance immediate cash-flow needs and an ‘at-risk’ group to take advantage of potential opportunities that the market and global economy present. The riskier group is invested over a greater time horizon to fund long-term goals like funding large charitable contributions or assisting children.

The ultimate goal is to help ensure that liquid assets are always available to fund the lifestyles and long-term goals of owners as they pursue the next chapters in their lives.

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

Citi Family Office is not registered as a broker-dealer nor as an investment advisor. Brokerage services and/or investment advice are available to Citi Family Office clients through Citigroup Global Markets Inc., member SIPC, and Citicorp Investment Services, member NASD/SIPC. All references to Citi Family Office Financial Professionals refer to employees of Citibank, NA, Citigroup Global Markets Inc. and/or Citicorp Investment Services. Some employees are registered representatives of either Smith Barney, a division of Citigroup Global Markets Inc., or Citicorp Investment Services that have qualified to service Citi Family Office clients.

Citigroup Global Markets Inc., Citicorp Investment Services, and Citibank, NA are affiliated companies under the common control of Citigroup Inc.

JOEL J. GUTH is an advisor in the Citi Family Office at Smith Barney, a division of Citigroup Global Markets. Reach him at and (866) 464-2750.

Friday, 26 October 2007 20:00

Managing merchant services

Customers no longer ask whether a business accepts credit — paying with plastic is standard, and it’s not just for retail.

Manufacturers can process smaller orders by accepting customers’ credit cards, and businesses may pay vendors through electronic transactions. End users prefer to use a debit or charge card for convenience purposes.

The ability to process and collect funds this way is called merchant services. Customers expect it, and business owners can cut down on costly invoicing and access cash flow faster with “card” capabilities, says Sharon Young, vice president, treasury management sales team leader, Huntington Bank.

“Merchant services is a must for any business that accepts and processes payments,” Young says. “Today everything is fast-paced. People want to complete transactions quickly. They want the ease, flexibility and security of paying with debit or credit cards.”

As a business owner, how quickly can you access funds paid by debit or credit? What equipment is necessary to complete these transactions? How much will fees cost?

Smart Business spoke with Young about merchant services, and what a company should consider before setting up a program.

What are merchant services?

Merchant services allow businesses to accept credit, debit and various types of stored value cards, such as gift cards. Merchant services also include point-of-sale devices, such as electronic terminals equipped with software systems that link to cash registers, PIN debit card devices and scanning machines for paper checks. Merchant services involve representatives who can help businesses select appropriate equipment and set up the devices. These professionals should also be on hand for support via telephone and in person. Banks that maintain relationships with merchant services representatives can introduce business owners to trusted providers and serve as a liaison, ensuring that all needs are met.

Who can utilize merchant services?

In the past, mainly retail businesses and restaurants utilized merchant services to process transactions. But this has changed drastically as credit cards have evolved as one of the preferred methods of payment for all businesses. Schools, manufacturing companies, service organizations — any type of business can benefit from a quality merchant services program.

What benefits do business owners realize by utilizing merchant services?

While there are fees associated with credit card transactions, the savings in administrative expenses and time far outweigh the costs. Credit payment can save businesses the time and cost of processing purchase orders (PO), filing invoices, collecting bills and processing checks for goods and services. For example, if a customer wants to place a small order for products that a manufacturing company produces, that company can simply process the client’s credit card instead of asking for a PO. This means the business’s cash flow for funding is faster, and the accounting department does not have to follow up with invoicing and pay a fee to process a check. Most importantly, the business can focus on delivering the goods and servicing the customer.

Some businesses hesitate to process small orders because of the cost of POs and invoicing. Merchant services allow operations to accept one-item orders and get paid for them quickly. Business owners know immediately whether a customer can pay. The security that credit cards provide ensures that businesses don’t suffer losses because of customers who pay late, as long as they meet credit standards and compliance.

What advantages do customers enjoy?

Besides instant gratification, they benefit from the flexibility of being able to place small orders. Because companies can collect funds on the order efficiently, customers are more likely to receive products faster. On the retail side, customers benefit from the convenience and security of not carrying cash.

What should business owners consider when contemplating merchant services?

They should consider more than the cost of the program. Ask about security. Businesses should deal with reputable merchant services companies that offer products that ensure the end user’s security is a priority. Business owners also must understand what equipment is available and the services they need for their individual organizations. They should ask how soon they could access funding. Payment processing can take anywhere from 24 hours to four days. They should not be tempted to accept a lower fee for a longer pay period if cash flow is important.

Before launching a merchant services program, owners should entrust a banker who can serve as a point person and facilitate conversations with merchant services representatives. Banks that partner with merchant services providers can assist companies in finding a quality program. They can arrange face-to-face meetings with merchant services representatives — education is an important part of the process.

SHARON YOUNG is vice president, treasury management sales team leader for Huntington Bank in Akron and Canton. Reach her at or (330) 438-1803. Huntington partners with First Data Merchant Services.

Tuesday, 25 September 2007 20:00

Business valuation: What’s it worth?

Whether you are planning an exit or simply want to motivate employees to drive profit, a business valuation is a key tool that will help you implement a strategic plan to meet short- and long-term goals. Simply put, a valuation is an independent appraisal of what a business is worth in the marketplace. Though a valuation ultimately gives you a number — a worth for your business — the process of reaching this value is more art than science. There is no single value for any business. It depends on the acquiring party, circumstances in the market and the dynamics of the business.

This is why relying on an industry “rule of thumb” is no way to approach a business valuation. “Every business is unique, and that individuality can increase or decrease a company’s value relative to others in the same industry,” says Joel Guth, an advisor with Citi Family Office in Columbus, Ohio.

Smart Business spoke with Guth about why valuations should be tailored to individual companies and their goals.

Why are business valuations not only an important tool for selling a business but also for exit planning and carrying out other strategic goals?

There are numerous reasons why you may need to find out the worth of your business. The first is obvious: an acquisition or transfer of ownership. Not only do you need to know how much the business is worth before selling it, but also acquiring parties will expect documented proof that the asking price is fair. Besides selling the business, you may decide to get a valuation annually and tie your company’s worth to an employee incentive plan. Finally, a valuation is a critical tool in exit planning to show you where you are now, so you can plan where the business needs to be before you exit.

Explain why a company’s worth may range drastically based on the reason for the valuation.

You must be very specific on why you want a valuation because an appraiser could provide a range of values depending on what you are trying to accomplish. For example, if a family member wishes to acquire the business, you want the lowest possible value to help mitigate some of the tax burden associated with the transfer. However, you want the highest value possible when selling to a third party so you can maximize gains. On the other hand, if the valuation is tied to an incentive program, you want to know the true market value of the company so employees will understand what the company is worth today and what they need to do to increase that value. There is no single value for a business, and you want to tailor the valuation to the audience and circumstances.

Who should conduct a business valuation?

A certified appraiser who is familiar with your industry should conduct the business valuation. If you are selling your company to a third party, partner with an appraiser who has experience in the dynamic M&A market. An appraiser who is not familiar with your industry may not be knowledgeable in current market prices. With any appraiser, communication is critical to receiving a valuation that suits your goals and can be used as an effective business tool. A valuation based on selling your business to a third party should not double as a valuation to show employees the worth of your company as it pertains to their bonus checks. They may wonder why the bonus isn’t bigger!

When and how often should an owner get a business valuation?

A valuation is a critical prerequisite to exit planning, so you should count on getting a valuation at least three to five years before you plan to sell or pass on the business. But again, the ‘when’ question is dependent on why you need the valuation. When exit planning, a valuation should be tied with a needs analysis. Decide how much capital is needed from the business to live comfortably after you exit. This will determine who you sell to, what type of valuation is necessary and, if your business isn’t ripe for the exit, how much work needs to go into getting financials in shape before you exit and meet your goals. Valuation is far more than putting a price tag on a business. An accurate, customized worth of your business is a great benchmarking tool and motivator to employees. Most of all, a realistic picture of your business today can help you better plan what’s next.

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

Citi Family Office is not registered as a broker-dealer or as an investment advisor. Brokerage services and/or investment advice are available to Citi Family Office clients through Citigroup Global Markets Inc., member SIPC. All references to Citi Family Office Financials Professionals refer to employees of Citibank. N.A. or Citigroup Global Markets Inc. Some of these employees are registered representatives of Smith Barney, a division of Citigroup Global Markets Inc., that have qualified to service Citi Family Office clients.

Citigroup Global Markets Inc. and Citibank, N.A. are affiliated companies under the common control of Citigroup Inc.

JOEL GUTH is an advisor with Citi Family Office in Columbus, Ohio, which is a firm that caters to clients whose net worth is at least $25 million. Reach him at

Tuesday, 25 September 2007 20:00

Keep fuel in your tank

What would you do if you lost a customer that represented more than 60 percent of your business? How about if a key employee jumped ship and joined the competition? When customers pay late, equipment is tied up in repair and vendors come knocking, business owners can run out of the “liquid” that fuels business operations: cash.

“Hopefully, a banker is talking regularly with customers and asking relevant questions along the way so there is an indication that a business may be heading toward a performance downturn before it happens,” says John Covington, vice president of business banking at Fifth Third Bank in Cincinnati. “I can’t stress enough the importance of ongoing dialogue with your banker.”

Smart Business asked Covington how business owners can plan for tough times and work through them with successful results and, in effect, a stronger relationship with their bankers.

What obvious signs indicate to a banker that a business is in trouble? What can cause a ‘tough time’?

Usually, bankers suspect when businesses are experiencing a challenging operating cycle. The trick is to pay attention and be prepared before events impair their ability to pay any principal and/or interest due. Businesses may appear on an overdraft report and rely on overdrafts to cover checks written to suppliers or employees, or banks may notice lack of timely correspondence. Owners may delay sending in financial statements or ignore phone calls from the bank. Finally, the financial statement may reveal that an operating covenant has been violated.

The events that can cause owners to pay late or not at all range from a slow economy, lengthening inventory turns, increased competition, changing technology, different payment terms from customers or vendors to losing a key employee or customer. Bankers who do their jobs are asking about these issues before they become concerns for business owners. Similarly, owners must be honest about changing business conditions and how this will affect their ability to perform and, ultimately, pay the bank.

When an owner approaches the bank during a tough time, how will a banker work to develop a solution?

It’s always better to plan for a potential problem so you can work through tough times rather than waiting to react to them. But business owners who are tied up in daily operations often let financials slide too far before realizing they must turn around their situation before a ‘tough time’ sabotages the business’s potential for success. That said, bankers will review company financial statements and compare performance to past years, quarters and months.

Furthermore, how did the company perform relative to the established financial covenants? Just because a company may trip up, a covenant does not necessarily mean a bank will ask for its money back.

Set appropriately, financial covenants serve as an early warning system that, when breached, forces dialogue between the banker and the borrower. Bankers dig for reasons and ask, ‘Why? Why is inventory turning slower? What is putting a crimp in cash flow? Is it different vendor payment terms, slow-paying customers or unexpected operational expenses? Why did a key employee leave? Did the business offer him or her a profit-sharing plan or incentives to stay? What is the company’s customer concentration profile — should the business work to diversify?’

After reviewing the ins and outs of the business, bankers will address areas where owners can cut back. For example, if the income statement shows a business is not earning enough money to pay for its operations, then an owner must either generate additional profitable revenue or remove a layer of expenses. The banker then works as an adviser, helping the owner to work through scenarios to improve the financial outlook of the company.

What preventive measures can owners take so they aren’t putting out fires?

Develop contingency plans to address risk factors in the business, and update those plans on a regular basis. For example, one of my clients lost a customer that represented 80 percent of his business. This was a big loss, but the owner knew how to react. He had a plan. First, he recognized that relying on a customer for such a large portion of overall revenues was risky. But the company’s overhead structure was such that the owner could control expenses and make adjustments if necessary. He planned to pay down the building loan so he wouldn’t have this fixed, monthly payment. He had a ‘skeleton staff’ he could rely on if he had to cut labor. So when he lost this customer, he acted on his plan. Today, his business is smaller, but it’s still profitable. Because he could react quickly, his business didn’t miss a beat, and his financials did not suffer.

JOHN COVINGTON is vice president of business banking for Fifth Third Bank. Reach him at or (513) 530-0791.

Tuesday, 25 September 2007 20:00

When banks merge

The merger process is an art and a science. A strategic business union requires blending company cultures, core values and key leaders — the “soft” part of a business that defines its personality and makes an impression on customers. But a merger also must make financial sense. Mergers should allow two parties to combine operations, leverage one another’s strengths and, ultimately, produce a stronger balance sheet and greater profit potential.

A merger is a mutual decision between two companies, as was the case with Huntington Bancshares Incorporated and Sky Financial Group. “We think we are better together than separate,” says Rick Hull, president, Greater Akron/Canton Region, with Huntington Bank.

On Sept. 21, Sky and Huntington will have completed all conversions.

“The same philosophy is still in place,” Hull adds. “We are a local bank with national resources, and we can deliver the same local decision-making that we always have.”

The difference is that combined resources mean a wide range of products for customers, enhanced technology and more convenient locations.

Smart Business asked Hull to discuss why organizations merge and how these unions affect customers, employees and shareholders.

Why would a financial institution make the decision to merge?

Banking has become a more difficult, competitive environment. There are greater demands for technology, and customers want more services. All this requires a lot of capital, which is why larger, regional financial institutions can accommodate these demands and smaller community banks face challenges when trying to compete in the same market. First, technology is expensive, and banks must be able to afford upgraded services to compete. And second, regulatory compliance involves investing in processes that are costly for banks. Businesses decide to merge so they can leverage strengths and provide the best services, technology and products, while at the same time compete effectively in today’s market.

How does a financial institution decide whether to partner with another organization?

Any acquisition must be accretive to earnings. The two organizations must gain operational synergies that benefit the ‘whole’ from a cost-savings perspective. Prior to a merger, the two companies should take stock of their resources: people, locations, customers, technology, etc. Next, each business should consider its future. How will a merger provide better value for customers and shareholders? Then, the companies should evaluate whether they share core values and philosophies so the merger transition is as seamless as possible.

Huntington and Sky shared the same vision and had similar organizational configurations. Both banks were driven by a community bank philosophy, albeit on a large scale. Having the same bank model in place provides the best continuity for employees and customers. For us, the operational capability was obvious. Huntington had invested heavily in technology and systems and, as an example, created one of the best online banking systems in the business. Sky had used its capital primarily to expand its footprint both organically and through acquisitions.

How do business customers benefit from a bank merger?

A greater distribution network translates into convenience for business customers — more locations that are closer to their own offices. Customers can appreciate a more sophisticated system. And because the merged banks’ capacity is greater, business owners can access programs that may not have been available to them in the past.

In our case, despite the ‘mass’ that will allow the new Huntington to give customers more, branches will retain their autonomy and 99 percent of decisions will still be made locally.

What should a business customer experience during the integration phase of a merger?

Transition in a merger should be as seamless as possible. By ensuring that the two companies share values before merging, the new combined company will not ‘surprise’ customers. They can conduct business as usual. For our customers, signage will change to Huntington Bank and customers will get new debit cards, but little else will change. Bankers will walk customers through the process. Communication during transition is critical, so customers can expect to receive multiple notices explaining the merger. Many of these mailers are required by the FDIC for regulatory purposes, so while the flurry of mail may seem excessive, it is necessary. Bank representatives will also explain the merger in person or call customers at home.

How can a business leverage the benefits of a bank merger?

A merger is an excellent opportunity for bankers to interact and catch up with customers to see what’s going on in their lives. Many time-pressed clients are busy running their businesses, and it’s a bank’s job to suggest the best products and financial strategies to meet their needs. At the same time, business customers can review new products and access other markets and products that were not available before.

RICK HULL is president, Greater Akron/Canton Region for Huntington Bank. Reach him at or (330) 438-1196.