In order to prosper in this challenging economic climate, it’s important to have a professional wealth manager who understands your goals and objectives. Such an adviser can help you build a long-term investment plan with diversification across multiple asset classes.
For optimal results, communicating regularly and directly is paramount.
“As an investor, don’t be afraid to ask questions. And don’t be afraid to say, ‘No, that’s not the strategy that I want,’” says Dennis Gilkerson, senior vice president and Western Market group manager for Comerica Bank. “A portfolio manager works for the client.”
Smart Business spoke with Gilkerson about how to recession-proof wealth, why it’s important to have ready lines of credit and what to look for in a portfolio manager.
What steps can individuals take to recession-proof their wealth?
In order to recession-proof one’s portfolio, it’s important to look at capital preservation and deleverage as much as possible. What I mean by this is paying off excess debt, such as home equity lines of credits, unsecured lines of credit and credit cards. It’s inevitable that we’re going to have mortgage debt and automobile debt, but as we work to recession-proof our portfolio, building liquidity is paramount.
Why is it so important to have ready lines of credit?
Having a line of credit available provides cash flow for emergencies. I tell my clients it’s like an insurance policy on your income or cash flow. It’s important to maintain some type of a line of credit so you can meet unanticipated expenses; however, you want to make sure that you have the ability to repay it within a relatively short period of time. In this recession, things are happening so quickly. It’s easy to find our income adversely impacted. A line of credit is a backstop.
Credit is currently tight; do you have any recommendations?
It’s critical to maintain one’s present obligations. A ready line of credit will not help someone if he or she suddenly stops making credit payments. In order to obtain or even retain credit, it’s also important to establish a relationship with a bank that is going to be there for the long run. We talk to a lot of clients that have multiple banking relationships. As one of the commercial banks currently lending money, we find that it’s helpful to consolidate banking relationships into one place. An individual’s balance sheet is composed of the liquidity, or cash piece, as well as the liabilities side: credit lines, mortgages, automobile loans, etc. By consolidating all of these pieces, your financial institution will be able to do more for you.
How should one go about evaluating one’s investment portfolio?
In this environment, it’s important to be actively involved with your portfolio manager. Even if your portfolio manager has discretionary authority — they can buy or sell based on their investment strategy — it’s important to communicate on at least a quarterly basis. Individuals who fail to communicate with their portfolio manager have greater exposure to volatility.
What advice would you give to someone who has available cash on hand?
First, ask yourself if you need the cash for short-term needs. Are there upcoming life events, such as paying college tuition, having a child get married or a business opportunity requiring an outlay of cash? If so, the advice is to hold on to that cash — keep it in relatively short-term, liquid instruments like a money market or CD.
On the other hand, if there isn’t an immediate need for cash, you need to evaluate your appetite for risk. If you’re comfortable owning equities for the next five years or so, there are some good equity strategies available to execute. If you’re not comfortable with the equity strategy, there are some solid short-term, fixed-income instruments that can match a life event and one’s level of risk tolerance. There are some great opportunities available for someone who has cash and a long-term outlook. That’s why it’s important to have an investment adviser or portfolio manager that you feel comfortable communicating with.
What qualities should an investor look for in a portfolio manager?
There are a number of attributes an investor should look for in a portfolio manager. One is longevity. For example, if a portfolio manager who has spent decades as a large-cap growth manager suddenly appears as a fixed-income or small-cap adviser, it should raise a red flag. The ability to communicate effectively is also important. Are you able to understand the strategy that the portfolio manager is executing? Are you comfortable with the portfolio manager? Do you trust the person?
Finally, there is performance. I put performance as the last on my list, not because it’s the least important but because portfolio managers need to have longevity in the particular discipline they’re focused on and experience in the industry, and you have to be able to communicate with them. These screening criteria can be helpful whether you’re evaluating your current portfolio manager or looking for a professional wealth manager.
Dennis Gilkerson is senior vice president and Western Market group manager for Comerica Bank. Reach him at (310) 712-6767 or email@example.com.
Against the backdrop of a gyrating equity market, it is important to have a professional wealth manager who understands your goals and objectives. Such an adviser can help you build a long-term investment plan with diversification across multiple asset classes.
“Liquidity and transparency of investments should be a priority,” says Sandro Rossini, senior vice president, regional manager of Wealth and Institutional Management at Comerica Bank. “Many managers have traditionally felt that there was no place for cash as an asset class. The recession has taught us the importance of cash.”
Smart Business spoke with Rossini about how to recession-proof wealth, the benefits of ready lines of credit and what to look for in a portfolio manager.
What steps can individuals take to recession-proof their wealth?
During this recession many families and businesses have witnessed their wealth evaporate in a relatively short period of time. While this is terrifying we do have to remember that recessions are followed by recoveries. The recession officially began in December 2007. The average recession lasts about 10 months, so we’ve already exceeded the average recession period by several months, but at some point, we will recover.
The first thing I would recommend is building up reserves of cash and credit to cover the risk of reduced income. Right now cash is king. No. 2, evaluate your investment portfolio in defense against any further drops. Thirdly, I would reduce costly debt. Rates are now at historic lows; refinancing or restructuring a loan or line of credit can save a lot of money. Finally, be cautious with expenditures. If your income level is good, you can quickly build up your reserves by tightening your budget.
Why is it so important to have ready lines of credit?
Credit permits individuals and businesses to continue to manage their expenses if income levels dip. Tapping in to credit in place of selling a depressed investment can allow you to recover losses or even generate a nice profit when market prices rebound. The DOW was down more than 30 percent for 2008. That means if you had invested $100,000 in the DOW index in January, your portfolio would be worth less than $70,000 by year-end. If you were unfortunate enough to need this cash and sold your positions you would have locked in these losses. However, beginning in March of this year we saw a nice rally in the markets. From March 9 through March 30 the DOW rose about 20 percent. If you had borrowed this money at, say, 5 percent, from December through March it would have cost you about $1,250. In this scenario, credit has just saved this investor a lot of money. The same investment scenario might also apply to real estate investments. Sometimes it makes sense to establish a line of credit rather than sell depressed investments.
Often, the most ready source of credit can be had by tapping in to the equity of your home. Many banks offer these with little or no upfront fees. They’re not as plentiful as they were in the past, but banks still prefer lending with collateral, and the house you occupy is still considered some of the best collateral. A home equity line of credit permits you to pay interest only when you use it, and in many cases, there are no annual fees for maintaining a line. It’s a nice insurance policy for emergencies.
How should one go about evaluating one’s investment portfolio?
The solvency of many organizations is in question right now. Many well-known companies are at risk of meeting obligations to their bondholders. Many stock prices have dropped by as much as 50 percent. If you haven’t had a professional evaluation of your portfolio, now is the time. You should work with a qualified investment adviser. Most of our clients feel more comfortable working with someone who is compensated by a fee versus a commission.
There are many ways to identify a skilled investment adviser. One of the most respected professional designations is something called a Chartered Financial Analyst, or CFA. This is a three-year program that requires one to study for and pass three levels of rigourous exams.
What advice would you give to someone who has available cash on hand?
Establish an investment account and devise a strategy. By this I don’t mean dump all of your cash in equities tomorrow. Rather, position yourself for a quick entry so that you can take advantage of a market recovery. Bear markets are generally followed by bull markets, which means at some point we will see a significant recovery and you want to be ready. You also want to have a sell strategy. It’s not enough to pick good investments and wait. Investors and their advisers need to constantly monitor the quality of their individual holdings as well as the surrounding economic conditions.
What qualities should an investor look for in a portfolio manager?
This is an excellent time to interview managers. Ask them to describe how they fared during this difficult market. Does the manager have a well-defined investment process? The traditional buy-and-hold strategy hurt many investors over the past couple of years. Managers who focus on evaluating asset classes — as well as the risk-reward profile of those asset classes — have fared much better.
Sandro Rossini is senior vice president, regional manager of Wealth and Institutional Management at Comerica Bank. Reach him at (415) 477-3212 or firstname.lastname@example.org.
If your current bank doesn’t understand your business, it may be time to find a new financial partner. In today’s challenging economic climate, it’s crucial that your bank is familiar with your market and understands the need for prudent long-term investments.
“When the customer and its bank are aligned on the fundamental questions, it’s possible to structure a banking solution that carries the business through tough times,” says Edmund Ozorio, senior vice president of Comerica Bank’s Western Market.
Smart Business spoke with Ozorio about selecting a bank in uncertain times, the importance of finding a good fit and how to go about evaluating a financial institution.
Why is the selection of a banking partner so important today?
It’s really a question of fit: How well does your bank fit your company and your banking needs? This fit has always been important, but in today’s environment, it’s doubly so. With the current stress on the economy, there may be stress on your company, on your industry and on your bank, as well. Because in times of stress, people and companies fall back on their basic values and philosophies, a bad fit is quickly exposed in uncertain times and can easily lead to difficulties in your banking relationship.
What do you mean by a good fit?
A good fit is where a bank’s core market and philosophy match those of its customer. A bank needs to understand your market, current business, specific business environment, your goals and your tolerance for risk. Your bank needs to be certain that its lending and credit philosophy can support your business and plan through not only likely deviations from the plan, but also unexpected setbacks. A good fit is when expectations are aligned before problems occur.
For example, a bank experienced in equipment distribution will understand that sales will be declining now. The more fundamental questions might be how to continue to invest in certain business lines that show long-term promise and how quickly inventory levels in less-promising segments should be brought in line with current sales.
How can a bad fit be avoided?
I believe that there are many examples of bad fits that have occurred over the past expansion and period of easy liquidity. Historically, when liquidity is easy to come by, it is deployed beyond the core business — by both the business and the bank.
Over the past decade, many banking customers sought the most credit availability along with the least expensive and least restrictive terms. Many banks sought to grow by increasing volume in noncore areas and by lowering price and loosening terms. When liquidity becomes more restricted, the banks want to exit the noncore businesses, but the company may find it impossible at that time to secure required financing on any terms.
So, avoiding a bad fit means looking beyond the immediate need and immediate offer from a bank — beyond the current pricing and terms. It means analyzing your bank just as a bank should analyze your business.
How should a business analyze a bank?
First, does the bank have the capacity to work with your business during tough times? Second, and more importantly, does the bank have the willingness to do so?
A good start is to evaluate a bank on the following five criteria: 1) Does the bank have the financial capacity to handle downturns? You should start with questions about capital adequacy — how much capital does the bank have in relation to its overall balance sheet? This is generally measured in terms of a percentage of risk-weighted loans. 2) Does the bank have a demonstrated long-term commitment to your industry and size of business? Ask what percentage of the bank’s assets are deployed in businesses similar to yours, and what is the breakdown between retail assets and business assets. 3) In discussions with your local banker and senior bank management, do you feel they have adequately identified the risks of your business? The bank needs to understand the business risks before you can feel comfortable that it has the ability and willingness to handle them. 4) Has the bank successfully negotiated downturns in your industry, and how many? Many banks that have not experienced a sufficiently difficult downturn have not had to make hard decisions about their banking philosophy and core markets. Ask about the longevity of banking relationships through several business cycles. 5) Evaluate the current relationship, which provides a good perspective on a bank’s overall portfolio. If all of the bank’s relationships are structured like yours, will it be willing and able to support your business in a downturn?
How should one start the process of finding a good banking fit?
Start with an evaluation of your current bank on the five criteria, but also build a relationship with several other bankers so you can evaluate them, as well. Ask your CPA or law firm for recommendations, if needed. Look for banks that are organizationally stable — not distracted by an acquisition, capital raising or other exercise that makes it harder to evaluate how a bank will react in the future. Finally, look beyond the current need to how things might look in a few years. Look for banking partners that can help your business now and in the future.
EDMUND OZORIO is senior vice president of Comerica Bank’s Western Market. Reach him at (619) 652-5775 or email@example.com.
Choosing the right bank is critical in today’s gloomy economic climate. As credit markets tighten, it is more important than ever to have a banking partner who can provide the financial resources necessary to help you grow your business.
This decision should not be made in haste, however. Switching financial institutions is one of the most important decisions that any company will make.
“Prior to making a banking change, a company should be absolutely certain that the relationship is over and that options are better elsewhere,” says William Phillips, senior vice president and group manager at Comerica Bank. “Careful consideration should be paid to a business’s current circumstances given the financial markets today and what the upside to making a change would be.”
Smart Business spoke with Phillips about selecting a bank in uncertain times, how to most effectively make a transition and the importance of communication.
What type of service and performance standards should businesses expect from banks?
Much has changed over the past three months. For banks today, there is a premium on liquidity, capitalization and balance sheet strength. Savvy business owners should know the financial health of their banking partners. Beyond that, businesses should expect their bank to offer comprehensive financial services, including cash management services, treasury management products and a wide array of lending products. Lending products can range from loans to finance a business and loans to finance asset purchases to loans to finance property purchases. You need to look further than whether the bank has basic lending capabilities; it should have all the products and services necessary to develop your business.
How can a company benefit from teaming up with a bank that offers a multitude of financial services under one roof?
Working with a bank that can meet all of your needs allows you to improve internal efficiencies. By leveraging one organization’s talent pool and the products and services it offers, you don’t need to seek out additional financial institutions. Having one bank and point person negates the need to retain additional staff to juggle multiple relationships, procedures and policies that can vary from one financial institution to another.
Why is it so important to look for a bank that has a history of supporting its customers through various business cycles?
It is essential to partner with a bank that is going to support its customers in both good times and bad. You want to find a bank that is consistent and reliable in all different business cycles. Avoid financial institutions that aggressively seek to build customer relationships with below market pricing and fees when times are good as they tend to indiscriminately dump customers when portfolios become risky and markets turn. The key is to find a stable institution that has proven itself through both prosperous and lean times.
How can a company most effectively transition from one financial institution to another?
First, companies need to seek out the advice of their financial advisers, whether they are attorneys, CPAs, neighbors, colleagues or friends, and familiarize themselves with the different financial institutions in their geographic area. Lending institutions have different tolerances for risk and size and have specialties and expertise that may be unique to a certain industry. Company leaders should find the time to meet with banking professionals that they know on a personal level or who have made inquiries about servicing their business. It is important to develop relationships and have a backup plan to avoid a costly and disruptive transition. Without a plan, financing options become very limited and expensive. In some cases, when businesses depend on outside financing for day-to-day cash flow, the result can be disastrous.
How important of a role does communication play in sustaining a positive working relationship?
Communication is everything. If you don’t have communication in the relationship, then it is more of a transaction than a partnership. Should a problem arise, you want to be sure that the people you count on to support the business are part of the team and are in the loop as far as key developments, changes and strategies go. Open, candid communication helps grow and foster relationships, which is extremely useful when issues arise, particularly during troubled times. Banks like Comerica that provide financing and cash management services play a critical role in the success of a business. There has to be trust, respect and honesty.
WILLIAM C. PHILLIPS is senior vice president, group manager at Comerica Bank. Reach him at firstname.lastname@example.org or (562) 590-2512.
When selecting a qualified CPA, industry experience always plays a crucial aspect of the determination process. Never is this need more pronounced than in the construction industry, where there are a number of accounting nuances.
“Since the public accountant is often the primary outside adviser to his or her clients, particularly in the case of smaller organizations, the industry experience factor is of considerable importance in the selection process,” says Michael Reiff, executive vice president of Gumbiner Savett Inc.
Smart Business spoke with Reiff about construction accounting, how construction progress and payment schedules should be monitored, and the importance of hiring a CPA firm with experience in the industry.
What is construction accounting?
Construction is the process of organizing materials, labor and capital resources in such a manner as to build roads, dams, buildings, bridges and the like. It is an industry different from all others as well as being diverse within itself. The types of work performed will range from the general contractor who oversees every phase of the project to the specialty subcontractors who perform a specific part of the project, such as the electrical, concrete or plumbing contractor. The size of a project can range from rehabilitating a house to the construction of a superhighway or an office building and shopping complex. Construction accounting is the financial method employed to track the revenue and costs of the project from inception to completion.
What are some accounting requirements specific to the construction industry?
Generally accepted financial reporting in the construction industry requires revenues to be recognized using the percentage-of-completion method, which attempts to match revenues earned in a particular accounting period with costs incurred in the same period. The completed-contract method of accounting, on the other hand, recognizes all the revenue at the completion of the project, which obviously could result in wild distortions in comparing income statements from period to period. The percentage-of-completion method requires the accountant to measure and make judgments concerning the reasonableness of estimates provided by the owner/contractor. Because of the reliance on estimates, the dependability of the estimates needs to be measurable with some precision. Throughout the duration of a project, modifications of the original contract are extremely common — these modifications are known as ‘change orders’ and each change order requires a recalculation of the percentage of completion.
How should construction progress and payment schedules be monitored?
Management of a construction project is key to completing it successfully and profitably. The goal in the industry is to get work by submitting a reasonable and profitable bid and then to complete the project within the parameters set by the original estimate. Each event that occurs during the course of a construction project affects the result of that project, and results affect profits. Each construction project is a separate profit center with its own cash cycle based upon the costs of the activities involved in that project and on payments from the owner, which are determined by contract terms. Typically, the subcontractors will bill the general contractor according to the percentage of completion calculated by costs incurred to the total contract, less a negotiated retainage percentage to be paid at a later date when the entire project is completed.
Why is it important for construction companies to hire auditors and accountants with experience in their industry?
In light of the requirements of the construction industry and its unique accounting principles, auditing requirements and tax regulations governing contractors, the selection of a CPA firm bears significant importance. Investors, credit grantors and surety companies frequently require annual independent audits for construction contractors. Even if they don’t require certified audits, there can be no question that such financial statements can enhance borrowing and bonding capacity. In many industries, the background and experience that an accounting firm has in a particular industry is a key factor in the selection process. With the financial reporting and tax regulations particular to the construction industry, this could not be more true.
How should one go about finding a qualified CPA firm?
Referrals from one’s peers is always the best place to start. Also, the contractor should ask the following questions:
- Does the CPA firm have experience in
the industry and with other contractor
- Are the partners and staff of the firm
knowledgeable about contracting?
- Does the firm have a good reputation
in the community and is it known by and
acceptable to lenders and surety companies?
- Is the CPA firm a good fit in terms of size, geographical location, etc.?
MICHAEL REIFF is executive vice president of Gumbiner Savett Inc. Reach him at (310) 828-9798 or email@example.com.
It is crucial to fully understand and properly manage your property tax obligations. By understanding the amount of property taxes you are paying and what you should actually be paying you can reduce your company’s expenses. By reducing expenses, you can increase revenue.
“The amount of property tax paid by a company directly impacts their financial bottom line,” says Derk Beckerleg, executive partner at Secrest Wardle.
Smart Business spoke with Beckerleg about valuation methods, how to minimize property tax expenses and the importance of keeping thorough documentation.
How can a company most effectively manage property tax?
The best way to manage property taxes is to either hire someone in-house or retain a property tax consultant. A property tax consultant can be an attorney or there are professionals that do nothing but property tax consulting. Either way, you should have a professional who can analyze the amount of taxes that your company is paying and how much tax you really should be paying.
What are the dangers associated with failing to consider county and state tax requirements?
When you fail to properly consider and understand county and state tax requirements or any municipal tax requirements for that matter it’s going to have an impact on your company’s bottom line. By failing to pay attention to the requirements, you could possibly pay taxes that you don’t really owe.
What methods are used to determine the value of a property?
There are three methods of valuation: cost approach, sales comparison approach and income approach. The cost approach is essentially what it costs to build a building on a piece of property. With the sales comparison approach, you compare the property that you have with other similar properties that have sold. The income approach primarily applies to investment and rental properties. If a company owns an investment or rental property, it is generally valued by projecting the amount of future income the property will produce. It’s important to know the kind of property you have and the appropriate method to value that property because if you ever get into a dispute as to what your property is worth it generally falls into being valued in one of these three categories.
How can future property tax expenses be minimized?
The amount of property taxes that a company pays with respect to any piece of property is based on the value of the property. Therefore, if your property has been overvalued by the municipality that serves you, then you may be paying more property taxes than you should.
The only way to determine whether your property is overvalued is by hiring a property tax consultant who can analyze the kind of property you have, determine whether it’s properly valued and as a result determine if the property is being overtaxed. In the event that the property is being overtaxed you can contact the municipality’s assessing department and try to informally work out an agreement to reduce the property taxes. In failing that, oftentimes, you will need to file an appropriate lawsuit claiming that your property is being overtaxed.
In what ways can an expert help a company manage property tax compliance?
An expert can help a company determine if its property is properly valued and is therefore paying the right amount of taxes. If it appears that the municipality did not use the correct method of valuing the property, the expert might indicate it would be appropriate to hire an appraiser. It’s been my experience that the cost of an appraiser is almost always justified because municipal assessors give a lot of credence to formal appraisals as a method to properly establish what a property’s value should be. Retaining an appraiser can help a company reduce its property taxes.
How important is to keep thorough property tax records?
It is absolutely crucial to keep proper and thorough records with respect to your property taxes. It amazes me how many large companies don’t have a current running list of when they bought a piece of property, what they paid for it and when they got rid of it. They’re being taxed on property that they may no longer own, which certainly negatively impacts them.
With respect to investment property it’s important to know what the property’s vacancy rate is, what you’re renting the property for and what other properties in the area are renting out for so if you get into a dispute over property value you will have complete documentation for the assessors. Recordkeeping should be done on a regular basis and checked on a regular basis to make sure what you are being taxed for is what you have.
DERK BECKERLEG is an executive partner at Secrest Wardle. Reach him at (248) 539-2808 or firstname.lastname@example.org.
The U.S. Commercial Service provides offerings to help small and mediumsize businesses expand international sales. With trade specialists in more than 100 American cities and more than 80 countries, the primary thrust of the U.S. Commercial Service is to help equip businesses with the knowledge and tools necessary to navigate the foreign market.
Currently, one of the few bright spots in the flagging local economy is exporting, says Tim Murphy, first vice president for Comerica Bank.
“So far this year, California exports have totaled $49.7 billion, an increase of 10 percent over 2007,” he says.
Smart Business spoke with Murphy about the U.S. Commercial Service, what it provides and how a company can secure export financing.
What is the U.S. Commercial Service?
The U.S. Commercial Service is a division of the Department of Commerce that assists small- to medium-size businesses in exporting their products and services throughout the world. It helps educate companies about how to tailor their activities to a specific market with respect to their product slate, financing, marketing, assembly and logistics. In 2007 alone, the U.S. Commercial Service counseled 25,000 U.S. companies. This counseling facilitated exports worth $21 billion and helped create or retain 275,000 jobs in the United States.
What type of assistance does the U.S. Commercial Service provide to exporters?
The U.S. Commercial Service works with companies just getting started in exporting and helps companies increase sales to new global markets. Their services include world-class market research, trade events that promote a company’s product or service to qualified buyers, introductions to qualified buyers and distributors, as well as counseling and advocacy through every step of the export process. Probably the most popular service offered is the Gold Key service. Prescreened appointments with buyers and distributors are arranged by the trade specialist before an exporter arrives in any country. Help with travel, accommodations, interpreter services and clerical support are also part of the service.
How does the U.S. Commercial Service partner with corporate organizations to build awareness of exporting opportunities?
The U.S. Commercial Service recognized that it has limited resources and decided to expand the U.S. export base through innovative government and private-sector partnerships. By using each other’s organization, data bases and global/regional networks they are able to reach as many small and medium-sized enterprises (SMEs) as possible. Under the partnership program, seminars are co-sponsored to support the domestic and international marketing efforts of these SMEs. Topics range from ‘Export Basics 101’ to market- or industry-specific topics. A popular alternative to the seminar is the webinar a seminar conducted on the Internet and telephone. This can reach participants all over the country and allow access to industry specialists located globally. Finally, trade missions are an excellent way for SMEs to cost-effectively visit specific countries and meet with pre-screened business opportunities.
How can a company secure export financing?
Trade-cycle financing is financing that starts at the pre-export stage and continues all the way through the collection cycle. Two programs that we found to be very helpful to exporters are the working capital guarantees program offered by the Export-Import Bank of the United States (Ex-Im Bank) and the Small Business Administration (SBA). Additionally, we have a private insurance product that we call a trade payables policy, where we make short-term working capital loans to U.S. exporters that are guaranteed by private insurance. The loan proceeds can be used to purchase finished products for export or to pay for raw materials, supplies, labor and overhead to produce goods for export.
What other options are available?
Since exporters are selling globally, they need to consider how they differentiate themselves from the competition. Two ways of achieving this is to offer competitive terms and to price in the local currency (i.e. euro or yen). Both of these have additional exposures for the exporter, but they can be mitigated by using export credit insurance and hedging strategies.
While cash in advance is great if you can get it, many exporters find that they need to offer terms to their foreign buyers. Credit insurance policies protect against both the political and commercial risks of a foreign buyer defaulting on payment. In addition to the risk mitigation, insured receivables can be used to obtain bank financing.
To eliminate foreign exchange risk, an exporter can sell the foreign currency for delivery at a future date through a forward contract. This is called hedging and allows for the company to lock in a rate, assuring the company of a certain profit margin. Subsequent changes in rates will not affect the company’s profit margin.
TIM MURPHY is first vice president for Comerica Bank. Reach him at (562) 463-6530 or email@example.com. As a partner with the U.S. Commercial Service, Comerica Bank has the opportunity to work closely with its local offices in San Diego, Los Angeles and Ontario.
Many homes and apartment buildings constructed before 1978 contain lead-based paint. While the presence of lead paint, in and of itself, does not necessarily pose a hazard to a dwelling’s tenants, it can be harmful to young children under the age of 5 if the integrity of the painting surface is compromised by chipping and peeling. Lead exposure claims are especially pervasive in inner-city areas that typically have older housing.
“As a person in the rental property business, it is very important to protect oneself from childhood lead exposure claims or lawsuits,” says Rebecca Filiatraut, partner at Secrest Wardle.
Smart Business spoke with Filiatraut about how to protect oneself from lead exposure claims, how the remediation process works and what type of legal liabilities can arise.
How can landlords/property owners protect themselves from lead exposure claims?
First and foremost, a property owner should have his rental property inspected by a certified lead remediator if it was built before 1978 to determine if there are any lead paint hazards present. If there are lead hazards at the property, he or she should hire a certified lead remediator to perform the repairs in order to prevent the spread of lead dust and chips during the process. Secondly, whether or not the property contains or has ever contained any lead-based paint hazards, the owner must provide Title X disclosure statements as well as the EPA pamphlet titled ‘Protect Your Family From Lead in Your Home’ to all tenants at the inception of their leases. It is also wise to obtain a signed and dated statement from the tenant acknowledging receipt of these materials.
Title X disclosures provide the tenant with a written statement by the landlord indicating if the property has ever tested positive for any lead paint hazards. The requirements of Title X are federally mandated and are strictly enforced by the Environmental Protection Agency. A landlord or property owner can obtain copies of these documents either from their local health department or from the EPA Web site located at www.epa.gov.
In addition, any complaints from tenants about chipping or peeling paint conditions should be promptly and thoroughly investigated by the property owner.
How does the remediation process work?
Remediation of lead hazards can be a costly and time-consuming process. If a child is found to have an elevated blood lead level by his or her pediatrician, a referral to the appropriate health department is usually made. Following referral to the health department, an inspection will be conducted to determine the actual source of the child’s exposure. If it is determined by the health department inspector that the rental property does have areas of hazardous chipping and peeling lead paint, a written notice will be sent to the owner of the property, and the owner will have a period of time within which to complete all repairs, usually 30 to 60 days. Occasionally, it is possible to receive a grant to cover the cost of the remediation through HUD or even Section 8.
If the landlord or property owner intends to perform the remediation work him or herself, it is extremely important to remember to completely encapsulate, preferably with Visquine, the area being remediated in order to contain any lead dust, which could contaminate other areas of the property, including the soil surrounding the property itself. The area being remediated must also be wet-sanded, as dry sanding will only serve to spread the hazardous lead paint dust and further contaminate the subject property.
What type of legal liabilities can arise from lead exposure?
If a child is found to have an elevated blood lead level due to exposure determined to have occurred while living at a particular property, legal liability may result. A child may be entitled to receive a monetary sum to compensate him or her as a result of damages due to the high lead levels. These damages can include loss of IQ points, learning disabilities requiring special education, behavioral problems, and other related brain or neurological damage. Certainly, the damages in these cases can be very significant.
Additionally, if a landlord or property owner is found to have knowingly violated the requirements of Title X, liability may be deemed admitted and the only issue remaining for the trier of fact will be damages. Outside of the context of civil liability, a fine can also be imposed by the EPA against a property owner who has not provided the requisite Title X information to his tenants. This fine could be up to $10,000 per property. In recent years, the EPA has been conducting independent audits of landlords and property owners across the country to determine compliance.
REBECCA FILIATRAUT is a partner at Secrest Wardle. Reach her at (248) 539-2827 or firstname.lastname@example.org.
The relationship between a borrower and bank does not end with the disbursement of a loan. After funding has been secured, a commercial banking officer works closely with his or her back-room operating unit to make sure loans are processed correctly.
“If the loan isn’t being handled properly, there are all kinds of ramifications that will carry through to the financials of a company,” says Carol Malecha, vice president of loan servicing for MB Financial Bank in Chicago. “They could have their loan not accrue correctly, they could be faced with an incorrect payment or they could be reporting incorrectly in terms of their liabilities and assets.”
Smart Business spoke with Malecha about what business owners should know about the treatment of their loans, what happens at the bank after a loan is approved and the importance of communication among a bank’s operating units.
Beyond interest rate, what should business owners know about the treatment of their loans?
After everything is signed, sealed and delivered, customers need to know that their loan is going to be treated with the respect that it was treated with when they were taking out the loan. Customers should ask what their bank does to ensure that there is quality processing. Is the operating unit on board with the philosophy of relationship banking? A banking relationship should be customer focused, not operationally focused. This should be evident from the origination of the loan to the payoff of the loan.
After a loan is approved, what happens at the bank?
After a loan is approved, the operating unit gets the original, signed documentation. Then the loan is keyed into an operating system, called the host system. The loan will get boarded with the proper interest rate, the proper term, the proper accrual, the proper billing instructions, etc. Once it is in the system, the bank processes the loan payments and disbursements through the life of the loan. This can be done in several ways: through account officer contact or through item processing where the payment stub is sent with the payment. There are many touch points in the bank that have to work in harmony to provide the quality service every customer should expect and demand.
What role does a bank’s internal communication play in the loan process?
An operating unit communicates with internal customers more than external customers. For businesses to run seamlessly, there needs to be open communication among the account officers, commercial banking associates and consumer lenders. For example, with complicated attorney-prepared documents, there has to be open communication from the time the credit is reviewed through the loan documentation events because all of the terms of the loan have to be clarified in order for the loan to be put on the books correctly. A customer should ask for examples of how his or her bank’s operating units communicate with each other because this is very important. The more open the communication and straight-through the processing, the greater
the efficiency and quality of the service.
Who at the bank should business owners be in contact with?
If it is a commercial relationship, a business owner should be in contact with his or her relationship manager, commercial officer or commercial officer’s associate. This makes the most sense because a relationship is already established; they know each other and they have developed a rapport so they understand what needs to be done. In turn, they will communicate with operations on behalf of the customer. The goal is to ensure that there is a common understanding of the loan on the back end, ensuring the loan is managed in compliance with the terms of the agreement.
What problems can come from banks that sell loans to the secondary market?
Loans to the secondary market do not have an impact on the customer. The relationship between the selling bank and the secondary lender — whether it be Fannie Mae, Freddie Mac or another lender — is between the bank and lender and does not affect the customers at all.
What steps can a company take to fully leverage its bank’s products and services?
The best thing companies can do is develop a personal relationship with their account officer or relationship manager. They’re the professionals who know the most about what the bank can and cannot do. There is a wide variety of products out there other than loans that can help a business, including new electronic processes and online banking. A relationship manager should be aware of these offerings and if his or her customer would benefit by taking advantage of additional products.
CAROL MALECHA is vice president of loan servicing for MB Financial Bank in Chicago. Reach her at (847) 653-2885 or email@example.com.
There are a number of benefits that can be gained from obtaining an audit of financial statements even if there is no third-party requirement. Good auditors will familiarize themselves with the business and operations of a company and share valuable advice that may lead to more cost-effective ways to operate.
By leveraging the knowledge gained through the auditing process, an auditor may also make suggestions to management on ways to improve internal controls to ensure accurate reporting and guard against fraudulent activities.
“If an auditor discovers fraudulent activities with respect to financial reporting, these would be reported to management,” points out Rachel Simon, executive vice president of Gumbiner Savett Inc.
Smart Business spoke with Simon about audited financial statements, how to go about finding an auditor that recognizes your needs and the importance of starting the process early in the year.
Why is it so important for businesses to have audited financial statements?
Audited financial statements are needed by businesses for a number of reasons. They are required by various federal and state regulators, such as the Securities and Exchange Commission (SEC) for companies whose stock is publicly traded, the Department of Housing and Urban Development (HUD) for certain real estate developers and the National Association of Securities Dealers (NASD) for futures brokers.
Audited financial statements may also be required by lending sources, such as banks, current investors or potential investors. Sometimes, a company’s owner may request a financial statement audit so that he/she may obtain comfort about the financial reporting or to put employees on guard.
How should a company go about finding an auditor that recognizes its needs?
Various factors should be considered when a company’s management or audit committee (for publicly traded entities) decides to find a new auditor. Management should begin by trying to get references from its bankers, lawyers or management of other companies. Having an accountant that specializes in the company’s industry or type of regulatory reporting is an important factor. Some examples of industries that require specialized accounting knowledge are not-for-profit, real estate, banks, investment companies, broker-dealers and entertainment.
The ‘right fit’ as to the size of the accounting firm should also be considered. A company that is working with an accounting firm that is too big may not get the attention it deserves. On the other hand, a company that is working with an accounting firm that is too small may not get the appropriate level of expertise that is required.
Lastly, management should make sure that the accountant that has been selected to do the audit is in good standing with its state board of accountancy and the American Institute of Certified Public Accountants.
How should a business prepare for an audit of its financial statements?
The person(s) who will be responsible for providing the auditors with financial information should meet during the year with the auditors who will be in charge of the audit so that they can learn about the business that is about to be audited and to discuss what will be needed to perform the audit. The auditors will usually provide a list of the items needed. This first meeting should happen as early in the year as possible, since the auditors may perform some interim test work prior to the entity’s year-end.
Many times, auditors obtain and document an understanding of the company’s business and internal controls prior to their year-end fieldwork. In order to have as effective and efficient of an audit as possible, information to be provided for the audit should be completed accurately and completely prior to the start of fieldwork.
How can business owners benefit from a financial statement audit?
In addition to providing the auditor’s report, there are many other benefits that can be derived from a financial statement audit. Because an auditor is required to obtain an understanding of the company’s business and internal controls, an auditor may become aware of and recommend ways that the entity can improve its internal controls over financial reporting or profitability. The auditor is also required to perform certain procedures regarding a company’s policies and procedures to detect and prevent fraud. Any suggestions of ways to improve the detection and prevention of fraud would be recommended. Finally, an auditor may discover tax savings measures while performing the audit.
RACHEL SIMON is executive vice president of Gumbiner Savett Inc. Reach her at firstname.lastname@example.org or (310) 828-9798.