When initiating an employee into a corporation, it’s ideal for the new hire to begin contributing as soon as possible. But, is the corporation giving its new hire the resources needed to effectively bring his or her skills to the table? Amidst simple introductions and training, there’s an opportunity for a company to provide a formal orientation on its procedures, policies and culture that can more seamlessly let a new employee hit the ground running.
“Orientation helps new employees become more comfortable in their new environment, which, in the long run, is going to lead to them contributing more quickly,” says Jennifer Wilson, St. Louis regional vice president of Robert Half International.
Robert Half developed a survey in which 87 percent of respondents who received a formal orientation said that it helped them to prepare for success within that corporation.
Smart Business asked Wilson about the steps businesses can take to develop an orientation program and what benefits this kind of training may provide.
What can employees gain from an orientation program?
The more comfortable employees are — knowing more about their position, the organization’s policies, administrative information — the better it allows them to focus on their role versus having to worry about extraneous details. Most importantly, I think it helps employees feel a sense of camaraderie. They feel as if they belong more quickly when they’ve been orientated to their new work environment.
What benefits might an employer see from an orientation program?
Employees who go through orientation can become productive more quickly because they understand what is expected of them and have been given a foundation for success. A formal orientation program also helps boost recruiting efforts. When people are given tools to succeed, they’re going to have a positive impression of the company, which distinguishes the company among job candidates and, in the long run, leads to better employee retention. When members of a company feel as if they’re supported with professional development and goals, they’re more compelled to want to stay with that organization. This, again, leads to a more positive reputation that helps when recruiting.
Who within the company should be responsible for orientation?
An effective orientation program includes contributions from multiple contacts within the company. Representation from senior management is always powerful and shows that professional development is valued at all levels. The direct supervisor of the employee should explain performance expectations and the job description. A human resources representative should be involved with presenting benefits, compensation and company policies. You may also want to have top performers within the company there to share some of their successes.
Why doesn’t every company have a formal orientation program in place?
Some employers might feel as though they’re not able to dedicate the time or resources to develop this type of program. I’ve seen many companies that have a very informal program in place and feel that it’s effective. The more structured an orientation program, the more beneficial it will be.
What expenses can be expected?
It’s a case-by-case scenario. Some companies may have a large global operation where flights and hotel expenses are involved. For a smaller corporation, it may be a once-a-week training session on-site. It’s really dependent on the company’s size and resources.
What are some components of an effective program?
Start off by sharing the company’s mission statement and core values. Talk about the organization’s structure, the industry and its competitors. Discuss job description and performance expectations. The employee handbook and general policies should be covered, as well as anything regarding benefits, vacation time and compensation. Some companies have security clearance issues to explain or even reporting procedures. There should also be an introduction to the company’s key contacts so that if employees need access to information they know whom to approach.
Should orientation cover company culture? the
Absolutely. Some of that may be covered in the mission statement or in a discussion of company’s values. But if your company has large numbers of satellite offices, the culture could be a little different everywhere, and that needs to be covered.
Should orientation be a one-time occurrence or an ongoing process?
The most successful orientation programs are ongoing. The first couple of days may be more of an informational approach, but that should be followed up by a more extensive, formal program that includes ongoing training, perhaps with a mentor or manager. Supervisors need to find a way for employees to receive ongoing guidance — the process
doesn’t end the first week on the job. Spacing things out also prevents staff from becoming overwhelmed with information and helps from a retention and learning standpoint.
JENNIFER WILSON is St. Louis regional vice president of Robert Half International. Reach her at (314) 621-5260 or email@example.com
Whether you are building from the ground up or renovating existing space to suit your business’s needs, new construction is never cheap. From materials to systems expertise to labor, owners need to be prepared to look for savings in every aspect of the project.
This is where project management or process management, as Bob Toryak of CresaPartners likes to call it becomes a vital part of meeting your company’s needs without exceeding your budget.
“A project manager should be a true advocate for the tenant, from the start of design through construction administration, and finally with restoration/close-out of prior space,” he says.
Smart Business spoke to Toryak about some of the hurdles owners will need to overcome during construction and how a project manager can help to identify savings.
What kinds of factors affect construction costs?
Costs can increase as a result of the economy. For example, copper went through a significant price increase last year. This year, costs have settled down. Dry wall is increasing in cost because of the energy costs to manufacture it, which has also affected the costs of other construction material. When Katrina hit, we had a big shortfall with many products. For example, on the electrical side, main panels for office space required a 17- to 20-week lead-time. These lengthy lead times can impact the clients’ move-in schedule.
What can be done?
We listen to our clients to understand their culture and needs. If management is changing to an open landscape plan, the use of wall systems that are premanufactured is a solution. Additionally, they can take the panels with them when moving again. The panels incorporate fabric and glass for aesthetics and, at the same time, provide flexibility for reconfigurations.
They are more costly, but the client can write them off over the term of their lease and realize tax savings.
As far as IT infrastructure, this can be more difficult. There are ways to get the same quality cable, but maybe with a different manufacturer. A lot of the cable has been imported from Europe. Clients have specifications they require, but they can get the same compliant quality without having to pay an extra 25 percent more for brand-name cable.
When should a project manager step in?
One of the most important things we try to do is get involved in the very beginning of a project. A project manager acts as a liaison with the client, the landlord and the contractors through the bidding process. Starting with the design process, a project manager can save clients money on the various tasks, such as architectural and engineering fees, wiring/cable and general contractors, as well as furniture and move coordination. A project manager can save a client anywhere from 27 to 36 percent, on average, in the Philadelphia region. We recommend that even if they do not engage CresaPartners, that they make sure that they have someone who has experience in various disciplines such as voice and data infrastructure, construction work, furniture systems and even financing. With that experience, costs can be driven down and the process far less complex.
How might a project manager help to find other savings?
For most clients, the biggest expense outside of the rent and tenant improvement allowance is furniture. All major contract furniture manufacturers have various lines of product at variable price points. You have to find out what the clients want. Are they design-conscious, just looking for functionality, or is there a tight budget to consider? Furniture can cost anywhere from $20 to $25 a square foot for brand-new, mid-price furniture and significantly more if they want high-end, designer furniture. Each manufacturer can bring the price in line to meet the client’s needs.
In the Philadelphia market, many of our clients are biotech, technology and health care companies that look at sustainability and green building construction for LEED Certification. As the project managers for a client, we encourage the use of products that are sustainable. A sustainably designed interior has many benefits, including energy savings and increased employee productivity.
The bottom line is that you need to listen to your clients for their specific needs and expectations so that the project can meet their goals, schedule and budget.
BOB TORYAK is director of Project Management with CresaPartners. Reach him at firstname.lastname@example.org or (610) 825-9564.
An overachiever is an overachiever, no matter in what profession he may find himself. When hiring someone for a job that requires quick thinking, good customer relations and an eye for detail, it probably doesn’t matter much that he’s unfamiliar with your business, as long as he’s willing to learn.
Jim Bonner, vice president of The Graham Company, is a prime example, as someone who entered into the insurance business after a career in nuclear engineering and hit the ground running.
Smart Business talked to Bonner about the skills he brought from his former profession and how being detail-oriented is a key part of being an effective insurance professional.
How does your background as a nuclear engineer translate to skills used in the field of insurance?
I was an officer on a nuclear submarine, and on submarines, almost every procedure involves two-person control, in that two people are checking on any one operation in order to prevent human error from sinking the ship. When I came to The Graham Company, I was surprised to see that in a very similar fashion, every insurance policy is checked by two people before it goes out the door. We don’t leave anything to human error. We want to minimize the chance of any errors by having two-person reviews of our work product. The insurance policy is a contract that’s going to be relied upon when disaster strikes. That is not the time to find out you have a problem with your insurance policy.
Insurance and nuclear submarines are different fields, of course, but in both cases you have to pay attention to the details, and at the same time be aware of the big picture. In a submarine, it doesn’t help you to know that you’re heading in the right direction if there’s a sea mountain right in front of you. With insurance, you have to be meticulous about the details, but also look at the big picture of whether the coverage is correctly aligned to our customer’s operations.
One of my tours of duty was on a submarine during new construction. We actually lived on the submarine as it was being built. So both from a construction standpoint as well as a manufacturing standpoint, I have a very good understanding of construction sites as well as the manufacturing processes, which has helped me understand the many challenges our customers face on a daily basis.
What is an example of a similar system used in both of your professions?
The two-person check system really works. With the audit process in the Navy, there was always a self-assessment by outside organizations to quantify the effectiveness of the crew. At The Graham Company, we have an auditing procedure that’s done on all of the account managers during their insurance renewal process to quantify their effectiveness at following procedures and providing the best work product for our customers.
Why would someone from a different background be a good fit for the insurance profession? How is one assimilated into the business?
Our company hires people who have the aptitude for the job and have demonstrated success in their prior profession. We are able to train them on the insurance and merge that with the culture of detail that we have here. We also have a nice mentoring program to help with the transition. When I joined The Graham Company, I had six months of classroom training, which was followed by three years of mentoring by an account manager who had more than 11 years of experience. We have continually refined and developed that account manager training process.
As an officer, did you learn about working with people?
Certainly. A submarine crew is a pretty tight-knit group of people. I learned how to communicate effectively and how to work with people who come from all kinds of different backgrounds. Every person is different and has a unique way of learning and working. As different as we may have seemed on the surface, we were united by the same mission in building and operating our submarine.
The environment in my current job is similar we all come from different places and have different educational and vocational experience, but we are united by the common goal of serving our customers. On a daily basis, we deal internally and externally with all kinds of different people from a laborer on a construction site to the chief executive officer.
Working with clients is an enjoyable aspect of the job because you see so many different ways of approaching business. We are fortunate to work with some of the top businesses in the country; our customers are top performers, and they expect the same from their insurance broker.
How else did your background prepare you for your current position?
JIM BONNER is vice president at The Graham Company in Philadelphia. Reach him at email@example.com or (215) 701-5294.
According to Kim Sharkey, vice president at The Graham Company, no business is exempt from the possibility of a workers’ compensation claim. “I think every employer in every industry has to worry about it,” she says. “Unless you’re in a firm where most of the staff is sitting behind a desk at a computer, but, even then, you have to worry about such things as carpal tunnel or other unexpected injuries. So I think it impacts everybody’s bottom line.”
Smart Business spoke with Sharkey about managing workers’ compensation claims and the accompanying costs.
What drives workers’ compensation costs and how can they be controlled once a claim arises?
As far as the claims costs themselves, they’re driven by a lot of factors, including medical costs, medical inflation, how well claims are managed by insurers and if you have a return-to-work program. When controlling costs on the back end, the biggest thing is to identify a contact within the organization that’s going to oversee the claims management process. We typically call them claims coordinators. Most of the time they’re involved with human resources type functions already, and they take on this aspect as well. That person works to establish a solid claims management program, part of which is developing relationships with physicians and providers. We help our clients set up a panel of physicians so that when a person gets injured they’re sent to an occupational health provider that knows our client’s business. The goal is to work with those providers to get the person back to work as soon as possible. Returning to work stops the ‘lost wage’ or indemnity component of a workers’ compensation claim.
Is it common for an employer to have relationships with people in the medical field?
Absolutely. We stress that our clients not only develop the panels and have them posted for the employees, but that they also get to know the providers with whom they’re working. We want them to make phone calls and visit the plants and locations so they can see the types of jobs the employees do. Medical providers need to understand the client’s return-to-work program and modified duty, which enables the employee to come back to work even if not fully recovered, and make sure that the physician sees what types of jobs are available with restrictions to get the employee back in the work place immediately.
How much control does the employer have over a workers’ compensation claim?
Ultimately, the relationships with the medical providers are key, because they control how long that employee stays off of work. They treat, rehab and manage the injury. Having the employer work with that physician to make sure that any accommodation can be made to get the employee back into the work place as soon as possible is the key to controlling that overall cost of the claim.
What if the employee is unable to return to work?
If there’s a situation where an injured employee has permanent restrictions, then there are a couple of things you can do. If the employer can accommodate those permanent restrictions and keep the employee working, that would be the first choice. If returning to work would cause an undue hardship or the work place can’t accommodate the worker’s permanent restrictions, in Pennsylvania we have to find that person a job elsewhere in order to get them off of workers’ compensation benefits. If another job is not available at the employer, then we sit down and talk about how maybe a potential settlement would be the best cost control measure. We try to help our clients with a cost benefit analysis of what happens if you can’t take the employee back, if we have to search for another job elsewhere, or if we settle the claim.
How can an employer keep tabs on injured employees?
The biggest key is that centralized coordinator. He or she is responsible for keeping in touch with employees and not just relying on the insurance company or third-party administrator. Find out how they’re doing. Let them know you’d like to have them back as soon as you can and will make a job available for them. You want to make them feel part of the company and you want to make them feel that they do have a job to which they can return. Staying on top of that goes a long way for the ultimate cost of the claim. Stay in touch with them and the physician and make sure that they’re all working together to achieve the best outcome.
Anything else an employer should know?
When accidents occur, it is critical to have solid accident investigation procedures. Ultimately you want to find out why the accident occurred, determine the root cause and then put things in place to prevent that situation from ever happening again. We do a lot of trending and analysis for our clients, analyzing where the claims are coming from and looking at the accident investigations to make sure that all types of programs are put into place to prevent the same incidents from happening. The bottom line is that employers do not want employees to get injured and they want to do whatever they can to create a safe work place.
KIM SHARKEY is vice president of The Graham Company in Philadelphia. Reach her at firstname.lastname@example.org or (215) 701-5278.
With everything it takes to run a business, defining corporate values can often be low on the to-do list.
But what will you, your managers and your employees refer to when faced with an ethically challenging situation? Making up the rules as you go shouldn’t be an option.
Smart Business spoke to Ginny Beneke, vice president of regional operations and marketing at National University, about the importance of setting a precedent and sticking to it.
Where should an ethical mindset begin in a company?
The important thing about an ethical organization is that it has to start at the top. Just like anything else, it’s a business practice, but it’s really a cultural principle that sets a foundation of what is right and wrong. Then, within the different departments, you would implement that as an organization.
It’s important that it’s done through training both for internal purposes and external purposes, such as customer service. It’s relevant for the external and for training internally to have corporate core values that you all believe in, and then to reinforce those through correspondence, communications, meetings, business practices and policies, and customer service. So it’s really setting the clear expectations of what it means to be ethical in that organization and then reinforcing it through training and your practices.
At the end of the day, it’s not always the easiest thing to do, but it’s what’s fair and what’s right and helps people feel good about working there. And customers like to be treated fairly: instead of just getting the good deal, they’re treated fairly and justly. We all like to feel that way, whether it’s within our own organizations or dealing with other organizations.
Can defining ethics sometimes become an afterthought?
It can. People tend to think about their businesses too much. They’re busy creating the deal and creating the business model. They sometimes forget to create an overall principle and underlying ethical foundation. You also have to create a model upon which to base your decisions and your business policy: how you want people to treat each other and how you want people to treat their customers. Because it has to work both ways. You can’t expect your employees to treat your customers right and with respect, and then not do that internally within your own organization. It has to be ingrained within both areas of the company.
What are some roadblocks?
How you define ethics may be different for different people. It’s very hard to say what is right, what is wrong. People may have a different opinion on that and set different boundaries. Sometimes an owner will overlook setting boundaries. If you think about it, it’s very hard to manage those principles within your business. It’s almost like tough love these are things we have to want in an organization, how we treat people, how we talk to people, the decisions we make making sure that it’s fair and ethical. It’s a very tough thing, because it’s something that’s not normally taught, but it’s something that does provide an important structure in the company.
Are there resources for someone wanting to create an ethical organization?
We took the Ritz Carlton training program on customer service. So there are training programs around customer service and there are training programs around organization design. Stating your values and then incorporating them into both internal and external training are important. Going outside the company creates a benchmark against what’s there and how you can use that information within your company.
How can ethical values be clearly stated and encouraged?
A lot of companies have values cards that employees carry with them. Our values are stated on our Web site.
To clearly set expectations is important, whether that’s on a card or whether it’s just reinforced by the owner or CEO. Make it a part of orientation training for new employees and ongoing training.
There should be employee rewards for good customer service. If someone does something really nice, he or she gets what we call an A+ card. It reinforces the values of respecting and appreciating other employees and creating good customer service relations between them.
We also do a lot of rewards and recognition. It’s not just that people get things done, it’s the attitude and the way they treat people. So it’s important to ingrain your values in a lot of things that are done throughout your organization. This attitude should also be reinforced in business practices, meetings, the way you conduct meetings, and so on.
It’s a tough thing to do it can be as tough as running a business but at the end of the day I think we all want to feel good about having the opportunity to do what’s right.
GINNY BENEKE is vice president of regional operations and marketing at National University. Reach her at (858) 642-8357 or email@example.com.
For certain businesses, the right people make the difference between a service that’s just average or the kind that’s above and beyond industry standard. So why limit yourself to the types of people you can hire?
Smart Business spoke to Margaret Jones, vice president, corporate secretary at The Graham Company, about how training programs can allow a company to bring in the best and the brightest regardless of their background.
Why implement a training program?
One consideration might be the ability to hire people from outside of your industry, especially when a lot of good people do not have industry-specific training. Some of the attributes that an employer might look for are things that you can’t really teach.
If you can hire people who have been really successful in their fields, with a strong work ethic and resourcefulness, you potentially have somebody with an aptitude for meeting client expectations. Once you identify the types of people you want for your business, the next step is to design a training program to teach them your industry.
When we started our program 22 years ago, it was almost unheard of for anybody to hire anyone outside of the insurance industry because there was so much technical knowledge required. What we decided was that we had the ability to train somebody in the technical part of the business. In our vision, it was those skills that were trainable. In our people, we looked for the intangible skills that were more innate.
What’s your advice for a business that wants to invest in training?
First and foremost, identify the types of people that you want to attract and determine what kind of training is going to be required for them to be successful.
In our business, we’ve created a three-year training program six months of classroom training and two-and-a-half years of on-the-job training. Depending upon your business and the level of training required, you may not require this kind of commitment.
You also have to focus on what is the most important component of your business. If it’s your people, you have to invest in them. That’s really the main decision. If your business is such that your people are not your strength it’s your technology or it’s your product then extensive training may not make sense. When you’re a professional organization providing a professional service, then your training department is almost like what a research and development department might be for a manufacturer that’s how we look at it.
Are there certain fields from which you’ve found excellent employees?
We have success in recruiting engineers and people with financial backgrounds, such as CPAs. We’ve also found that a lot of good hires are individuals who have attended military academies like West Point or Annapolis. They’re not really raw talent, because they have been successful in other fields, and they are going to be successful in whatever they do as long as they’re prepared for it. It’s our experience that the only way a business owner can attract these types of people is to not only assure them that they are going to be successful, but to demonstrate that you have invested in the resources to give them the training they need to achieve this success. Somebody like that is not going to change fields and industries without the assurance that they’re going to have the support to be trained.
Why don’t more companies invest in training?
Basically it’s a financial decision. It’s very hard for them to get the support of senior management because of the cost involved. In our agency, we have a ratio of one person in our technical development department that does training, continuing education and quality assurance for every 12 employees. That’s a huge investment. But we didn’t start off like that. We started our training initiative with one person 22 years ago when our company had 42 employees.
Anything else an owner should consider?
As a business owner, you can create a competitive advantage in the marketplace by having better trained, more knowledgeable employees than your competitors. Well-prepared, highly trained employees will make a difference for your clients and your business. Also, with an extensive training program, you’re able to determine whether or not somebody is qualified for the job during the training process, before they are on the front line servicing your customers or clients.
MARGARET JONES is vice president, corporate secretary at The Graham Company. Reach her at (215) 701-5264 or firstname.lastname@example.org.
The next time you order goods from Amazon.com, you may be committing tax fraud. There’s a little-known “use tax” that could cause big headaches for consumers purchasing goods from out of state.
“Georgia law requires that dealers who import tangible personal property from other states for use, consumption or storage in Georgia must register as a dealer and self-report the tax they owe for consuming these products,” says Christopher Compton, an associate with Gambrell & Stolz LLP in Atlanta.
Smart Business spoke to Compton to find out more about state use tax.
How did this tax originate?
The U.S. Constitution puts limits on how a particular state can tax transactions in inter-state commerce. Normally, when you buy something in a sales transaction, the retailer collects the retail tax and you, as a consumer, never think anything about it. But because the U.S. Supreme Court has said you cannot require the retailer to collect sales tax in inter-state commerce, the tax couldn’t be imposed. So, in answer to that, states came up with this idea of a use tax for actually using or consuming a product. Once the product purchased in interstate commerce comes to rest in its final destination that state can then tax the sale.
Who’s affected by this tax?
Obviously, with the rise of mail order and the Internet, these inter-state transactions have ballooned and businesses are ordering a lot of goods and supplies over the phone and Internet. The state says that a dealer must self-report the tax they owe for consuming these products. Now you might think: well, what’s a dealer? A dealer, among other things, is every person who imports or causes to be imported any tangible personal property from any state for sale, retail or use. So effectively, any time you buy something, and you haven’t paid sales tax, then you have to pay a use tax on it.
What are the penalties for failure to comply?
Absent the self-recognition, a tax payer may be committing tax fraud just by doing nothing, under the theory of a fraudulent failure to file a return. In Georgia, tax fraud will hit you with a 50 percent penalty, plus interest, plus the amount of the tax. As of 2006, there is a new criminal provision that makes it a misdemeanor with a $5,000 penalty to file a false or fraudulent return, graduating to a felony and a $10,000 fine on the second offense. So you could order something pretty small and face a $5,000 fine and a criminal misdemeanor.
How can penalties be avoided?
For individuals in Georgia there is a line item on the income tax return that allows you to report your use tax obligation, so you’re relieved from registering and filing tax use returns. I would bet most people never put a number in there. But for a business, on the corporate forms in Georgia, there is no line item like that. If you’re a business entity, you have to go that one step further. To comply, you basically have to take three affirmative steps: recognize,register and report. This means you have to, step one, determine that you owe this tax and then, step two, register in the state and then, step three, actually make the returns to pay the tax. Use tax returns are due either quarterly or monthly, depending on the volume of purchasing you’re doing. There isn’t an exception from filing the tax for smaller amounts of goods, but you can file it less frequently. If you file under a certain amount, then it’s quarterly.
How worried should business owners be?
I think the department of revenue is going to be practical. If you’re importing small amounts, they’re probably not going to come after you with a fraud charge. But there are businesses that order a significant amount of their supplies online.
A lot of people think if the business gets hit with tax liability, it’s just the cost of doing business. But under Georgia law, officers and members of LLCs and responsible persons can be held personally liable. You can’t hide behind a corporate shield.
What can someone do to avoid fines?
Arguably, you can buy from in-state suppliers, and then the retailer would be required to collect the sales tax on it. If you’re going to order online, or through inter-state commerce over the phone, you would have to register with the department of revenue and report your use tax as often as you’re making payment.
I think you have to do a certain cost-benefit analysis. If you’re making maybe $1,000 a year in inter-state purchases, you probably don’t have a big problem. But if a significant amount of money is exchanged, or there’s one big out-of-state vendor that’s sending in a lot of supplies and they’re not paying tax on it, I certainly think it’s something you should investigate with your accountant. The tax is one thing, but nobody wants to be convicted of fraud.
CHRISTOPHER COMPTON is an associate with Gambrell & Stolz LLP. Reach him at (404) 223-2219 or email@example.com.
It never hurts to have someone on the inside, letting you in on the latest ways to save a dollar especially when it’s a tax dollar. According to Chris Hitselberger, senior managing director at CB Richard Ellis, an engineer with tax code experience could be your new best friend. He or she can conduct a cost segregation study to point out places within a building that can be subject to greater depreciation, and lower taxes.
“This is a technique of accelerating the depreciation on a commercial building or multi-family building that will create about $30,000 to $150,000 in tax benefits per million dollars of a building’s cost,” he says.
Smart Business spoke to Hitselberger about what an owner needs to know about cost segregation studies.
What is required of an owner for a cost segregation study?
Although executing a report is quite a detailed engineering endeavor, it doesn’t take much effort from the building owner. The studies are relatively non-intrusive. The building owner provides the tax basis typically the tax basis is the acquisition cost minus the land, since the building depreciates and the land does not or new construction costs in a new construction project. Providing complete and organized blueprints, or a greater level of cost detail than is normally tracked during a construction project, certainly helps.
Is the history of the building purchased relevant?
The age of the building is irrelevant. Every time a new owner takes over a space or a building, it starts a new tax clock. So the building may be 100 years old, but if you just bought it this year, you begin depreciating that building today for the next 39 years, or 27-and-a-half years in the case of a multi-family building.
What are some typical building components in which savings can be found?
Components that are in the nature of supporting the client’s business activity or can be removed without doing significant damage to the building may qualify to be treated as personal property for federal tax purposes. So we look at such things as the electrical system. In the average office, you need one electrical outlet, but there might be four electrical outlets in somebody’s office. One of those outlets writes off over 39 years or 27-and-a-half years along with everything that makes the outlet work: the conduit, the wiring, the circuit breaker, etc. that write off over 39 years. The nature of the intended use of the other outlets is just to plug in office equipment copiers, printers, fax machines, etc. so those outlets, because they support personal property, depreciate as personal property. So there might be a dataport that also plugs into the computer. The dataport and all the wiring write off over five years.
Interior walls or tenant improvements that do not penetrate the plane of the suspended ceilings can be five-year walls. Work cubes made out of permanent walls, drywall and studs, etc. are only 4-feet high, so those are five-year walls. As long as that wall can be considered demountable, meaning you can move that wall without disturbing the suspended ceiling system, it’s probably going to be a five-year wall.
Then everything from the edge of the property to the edge of the building can write off over 15 years. Those are site improvements, such as parking lots, landscaping, sidewalks, exterior lighting, or signage.
By moving these costs into five, seven and 15 years, it creates an accelerated depreciation, which increases the present value of the cash flow that’s created by depreciating the building.
Can a cost segregation study withstand scrutiny from the IRS?
Cost segregation is an IRS recognized technique. In fact, the IRS has created an audit technique guide, which anybody can access. It’s at www.irs.gov. Search for ‘cost segregation’ at this site, and it will take you to the audit technique guide. And it has a lot of interesting information about the history of cost segregation.
Who should take the lead on a cost segregation study?
It’s really the function of an engineer who understands this part of the tax code. Accountants simply aren’t taught how to read blueprints. They’re not taught how buildings are built, which is an essential skill. Accountants certainly play a key role in that they incorporate the results of the study for their clients. They take reported information and incorporate it into their depreciation schedules.
It’s not only the knowledge of engineering and construction procedures, it’s also the knowledge of the tax law. Because even though an engineer may have gone to a seminar that says a chandelier can write off over five years, it’s very important to understand why. You need to know what part of the tax code, or what legal precedent, there is behind your argument to write that chandelier off over five years.
CHRIS HITSELBERGER is senior managing director with CB Richard Ellis. Reach him at (212) 425-4300 or firstname.lastname@example.org.