Technology tool-related capital investments, such as new software, mobile apps and cloud computing services, are as important as a healthy workforce to many small business owners. But you must be strategic about the technological applications you choose, using your goals as a guide.
“It’s a really exciting time for small business. For the first time, you have access to tools and solutions that may have been cost prohibitive in the past, and you can buy them by the seat and without the need to build and support an enterprise infrastructure. This allows you to build a cost effective, end-to-end automation platform that really impacts your business,” says Frank D. “Buddy” Cox, Jr., executive vice president and chief information officer at Cadence Bank.
Smart Business spoke with Cox about how businesses are using technology to operate more efficiently and cost-effectively.
What emerging technology is impacting business productivity and profitability?
Cloud computing, a modern name for traditional outsourcing, has not only grown in adoption, but reach also has been extended from a focus on the enterprise to small business. This shift away from having to build a robust, secure and resilient in-house infrastructure to support software solutions, and instead migrating to a model where all critical infrastructure is built, maintained and shared by the provider, makes most all enterprise-level solutions available to small businesses in a very affordable way.
With Microsoft 365, for example, you can fully leverage Exchange, SharePoint and other enterprise-level solutions for less than $10 per employee per month. Platforms such as salesforce.com, when combined with modern real-time accounting platforms like financialforce.com, allow for a level of work flow and integration once reserved for large scale implementations.
Another technology that’s transforming business is the mobile platform. For most, it has become a primary computing device, allowing people to conduct business anywhere and at any time. When leveraged as a part of an overall business automation platform, the results can be very meaningful.
How are these new technologies transforming banking?
Banks continue to work with businesses that are building end-to-end automation solutions by plugging in at the right points in the process to provide real-time financial information and transaction capabilities. This includes, in many cases, unique one-off solutions to support a customer’s proprietary automated framework.
In the mobile space, we have seen an unprecedented adoption curve. A survey conducted by Constant Contact in March found that 66 percent of small business owners currently use a mobile device, such as a smartphone or tablet, for work. That same survey revealed that mobile apps increasingly are becoming part of how small business owners manage operations. Business owners clearly want to run their businesses and conduct their banking from the palms of their hands. Strategically, we are very focused on building feature-rich, secure and easy-to-use mobile applications that positively impact the day-to-day operation of businesses.
Mobile also is a much more capable and rich development platform than anything that we have built upon in the past. For example, not only can you turn your debit card on or off using a mobile app, but by leveraging location services on your device, we allow you to specify the use of your debit card only if it’s within a certain number of miles of you.
What are some challenges with the adoption of this technology?
Moving your data to the cloud or carrying sensitive data around on your smartphone present risk. Privacy, security, backups and business continuity are all topics to vet. Understanding from your provider how your data is stored, if it is encrypted at rest, how it is backed up, who has access to your data and how that is being properly controlled is extremely important. Third-party audits can be employed to validate that all of this is in place and functioning according to design. You must hold your vendors accountable to the same high standard with which you would grade your own internal control environment.
Frank D. “Buddy” Cox, Jr. is executive vice president and chief information officer at Cadence Bank. Reach him at (713) 871-4000.
Website: Cloud computing services and mobile technology are changing the way businesses operate and serve clients. Learn more at www.cadencebank.com.
Insights Banking & Finance is brought to you by Cadence Bank
Employee benefit plans are an important part of your company, and participating executives have just as much at stake as anyone else. With continually evolving fiduciary roles, the last thing you want is to fail in your responsibility, lose money and possibly face penalties or a lawsuit. That’s why employee benefit plan audits are conducted to identify potential problem areas. But only by closely managing the plan with fiduciary governance can you be ready for an audit.
“It’s prudent to have the board delegate to someone that is closely managing the plan — an oversight committee,” says Bertha Minnihan, national practice leader, Employee Benefit Plan Services, at Moss Adams LLP. “There’s so much to know, you can’t possibly know it all. It’s great to have this committee working with people who have expertise in this area to make sure they are meeting their fiduciary responsibilities.”
Smart Business spoke with Minnihan about areas of concern in employee benefit plan audits.
How do these plans come to be audited?
There are two types of employee benefit plan audits. If you have more than 100 eligible plan participants at the beginning of the plan year, you generally need an independent financial statement audit attached to your plan’s annual tax Form 5500. Eligible participants not only include employees eligible to participate, whether they do or not, but also those with plan account balances who are no longer employees. However, if you have between 80 and 120 eligible participants, the Department of Labor (DOL) allows you to file the same as the year prior.
The other type is when the DOL decides to audit the plan. Most of the time the DOL says its audits are random. But, for example, if you’ve reported late deposits on your Form 5500, sometimes that causes the DOL to want to look further. Another trigger is an anonymous employee phone call. The DOL also has different levels of inquiry — sometimes it just asks for supporting documentation from the independent plan auditors or the company, and sometimes goes directly to auditing the plan as far back as three to five years.
What are some areas of noncompliance, correction and deficiency you’ve come across when auditing these plans?
The DOL hot buttons remain similar to what they’ve always been. The top ones, on the regulatory and compliance side, are:
- Timeliness of getting all employee contributions into the trust. The DOL has said small plans, with 100 eligible participants or less, need to get everything in the trust within seven days. However, there’s no hard-and-fast rule for large plans, just as soon as administratively possible. This leaves a lot of room for judgment.
- Eligible compensation. What are the compensation components that are eligible for deferral and match?
- Operational defects, like not following eligibility requirements as noted in Plan documents or auto enrollment that isn’t kicking in when it should.
What developments are auditors following?
The accounting and auditing world has gotten more complex, especially on the investment side. Auditors are waiting for additional guidance on disclosure requirements for investments for certain plan types. For example, the Financial Accounting Standards Board hasn’t ruled on whether employee stock ownership plans are exempt from certain quantitative investment disclosures about the valuation of private company stock. Another issue is what exactly makes a plan public or nonpublic, and how that impacts the benefit plan disclosure requirements. Additionally, auditors continue to follow the convergence of U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards.
How should plan sponsors handle their plans?
Generally, sponsors need to stay educated. Things are moving fast, but companies have many service and investment providers at their fingertips. Call on them to educate your board and oversight committees.
When making a change in your plan, document it. Have an oversight committee, no matter how big the company, following and documenting the plan operations and plan investment decisions. The committee would, for instance, know the participant demographic trends or how auto-enrollment is unfolding. In the end, you’ll always be better for whatever is going on if you have that structure and a solid governance foundation.
Bertha Minnihan is national practice leader, Employee Benefit Plan Services, at Moss Adams LLP. Reach her at (408) 916-0585 or firstname.lastname@example.org.
Insights Accounting & Consulting is brought to you by Moss Adams LLP.
The retirement plan marketplace is a buyer’s market right now. Plan sponsors that haven’t shopped around in the past couple years might not be getting the most value for their money.
“The retirement marketplace is constantly changing with the addition of new products and services and the compression of costs,” says John Adzema, Vice President of Sales and Consulting at Tegrit Group. “Plan sponsors need to be aware and take advantage of these enhancements.”
Smart Business spoke with Adzema about the necessity of reviewing and benchmarking your retirement plan.
How often should plan sponsors have retirement plans reviewed?
Have your plan reviewed every three years or as certain events dictate, such as company acquisitions/divestitures, workforce changes, etc. You also could look at your company and its demographics to see if it makes sense to add another plan type such as cash balance, employee stock ownership or non-qualified.
What should you discuss with your financial advisor during a review?
As the plan quarterback, the financial advisor typically is tasked with overseeing plan investments, taking some type of a fiduciary role and managing the involved service providers. So, you should ask:
- Are my plan costs reasonable?
- Are my plan’s service providers, including the financial advisor, meeting service standards and helping me meet my fiduciary requirements?
- Are the plan investments performing as expected?
- Is my plan receiving the best consulting and latest technology?
- Are my employees getting the investment help they need?
What could happen if plans aren’t reviewed?
Even though you might not change anything, you need to compare your plan to the marketplace. You may save on costs or be able to expand to another fund family. You could get more tools for participants, website capabilities and educational materials. If your company acquires another firm and the plan assets increase from $1.5 million to $8 million, not only do you need to review from an operational standpoint to ensure compliance, but as a bigger plan you’ll have more purchasing power.
There can be legal consequences as well. In March, a court ruled against the plan fiduciaries in Tibble v. Edison International because they selected retail mutual funds with higher fees when lower cost institutional funds were available. To protect against Tibble-type claims, fiduciary committees should:
- Follow written plan documents and procedures, including any investment policy statements and committee charters.
- Document committee meetings and decisions with respect to plan investments.
- Review 408(b)(2) fee disclosure information and benchmark fees to comparable plans based on the number of participants and plan assets.
What’s the value of benchmarking?
Retirement plan benchmarking is the act of comparing your own plan’s qualities to similar plans. People immediately think about the plan investments or costs, but benchmarking also extends to a plan’s operating provisions and comparing your plan to plans of the same demographics, industry and geography. Benchmarking this helps ensure you are getting the best value for the price paid.
It’s wise to benchmark certain plan items like investment rates of return on an annual basis, but the entire plan’s workings and its service providers should be reviewed at least every three years.
Any final words on benchmarking?
Your financial advisor or another trusted party should carry out the benchmarking process for a consistent and independent approach. Generally you will get better pricing if you’re a bigger plan with larger average account balances and your plan is easier to run.
While benchmarking is a good indicator of what the masses are experiencing, your plan may have unique provisions that work well for you and your employees. If you pay a little more for someone to administer a plan that’s outside of the norm, then that’s OK.
John Adzema, QPA, QKA, TGPC, AIF, is vice president of sales and consulting at Tegrit Group. Reach him at (330) 983-0525 or email@example.com.
Visit Tegrit’s Advisor Resource Center for additional retirement planning tips.
Insights Retirement Planning Services is brought to you by Tegrit Group
State and local governments and nonprofits that receive federal money often must complete Single Audits, also known as OMB A-133 audits. These ensure monies are spent properly according to the different program requirements, and that the relevant organizations only have to go through one consistent audit event.
However, the Office of Management and Budget (OMB) has proposed changes to the audit structure that could have direct and indirect impacts, including decreasing the number of organizations required to undertake a Single Audit.
“A lot of organizations may say, ‘this is great, I don’t have to pay for a Single Audit anymore,’” says Daniel L. Wander, CPA, director of assurance services at SS&G. “But if this does go through, they may need to react to it fairly early to determine what their funders are going to require in terms of any changes or additional procedures.”
Smart Business spoke with Wander about the proposed changes and their impact.
What are the proposed changes?
As of February, the OMB recommended that the annual spending threshold for federal funds that require an organization to have a Single Audit be raised from $500,000 to $750,000. This is partly because of inflation — the last threshold increase was in 2003 — and partly to increase efficiency. The American Institute of CPAs indicated last year that entities receiving less than $1 million in federal funds made up about 24 percent of the total Single Audits but only covered 1 percent of total expenditures. The audits for organizations receiving more than $3 million in federal funds, however, accounted for about 97 percent of total federal expenditures.
Once an organization determines it must undertake a Single Audit, major programs over a certain threshold undergo a compliance audit, at least on some kind of rotational basis, where the auditor renders an opinion. The OMB proposal also raises this threshold from $300,000 to $500,000.
Another change is the coverage rules for high risk and low risk auditees. Coverage means program dollars covered in the compliance audit as a major program. OMB is talking about reducing the coverage rules to 40 percent for high risk and 20 percent for low risk auditees, from 50 percent and 25 percent, respectively.
Finally, OMB wants to streamline the compliance testing areas from 14 to six, focusing on areas where money is going to be misspent, and putting a number of cost and administrative principle guides into one central document.
What’s the timeline on these changes?
The changes are still in proposal form, and the comment period has been extended to June 2. Therefore, the earliest the changes would be in effect would probably be beginning July 1, 2014, giving people a chance to plan.
What might be the impact of the changes?
The direct effect will be fewer entities required to have Single Audits. However, they will still need to follow federal rules and regulations, and could be subject to audits by either state or federal organizations that want to come in specifically.
A fallout may be more state or local entity involvement through audits or additional requirements in order to fulfill state or local monitoring responsibilities. Currently, these organizations get automatic easy oversight from receiving Single Audits each year.
What are some next steps for nonprofits?
First, if nonprofits have anything specific to say, use the extended comment period. Then, reach out at least to your major funders, usually state, local or county agencies, and open a dialog so there are no surprises. How do the funders think they will react? Will they be putting in additional requirements as part of their oversight?
A nonprofit’s costs may go down but it may need to reallocate. If a nonprofit is subject to a Single Audit, the cost can come from the federal portion of your budget. If somebody else is imposing certain audit costs, you’ll need to talk to that organization about where that’s going to be allowable. If Ohio is requiring something additional, it ought to be paid with state money.
Hopefully, no one begins to believe auditors won’t be looking at this anymore. You still have to comply with the federal regulations, and there’s a chance someone will look at your spending at some point.
Daniel L. Wander, CPA, is a director, Assurance Services, at SS&G. Reach him at (800) 869-1834 or DWander@SSandG.com.
Save the Date: You have until June 2, to provide comments on the proposed revisions to OMB Circular A-133 and related grant reforms. The OMB must receive comments electronically.
Insights Accounting & Consulting is brought to you by SS&G
A fully insured business will shop around with different health insurance companies for the best value, including a good network. However, self-funded health plans — which are growing in popularity — contract with a rental network that administers benefits with the help of a third-party administrator.
Smart network provider contracting will maintain lower costs and access to care for members. Many employers only look at the discounts for services in the contract, but there are other methods just as important when evaluating a network.
“There are always some things out of your control, but you try to manage the network and build in predictability to make sure you have control over it rather than the providers,” says Jamie Huether, regional vice president, Network Management, at HealthLink, which rents its network to self-funded entities.
Smart Business spoke with Huether about what to consider when evaluating a network contractor.
How can a network provider maintain lower costs?
A network provider employs a number of contracting methodologies to help health plan clients achieve the best rates. One is having as many fixed rates and as much charge master protection as possible, which limits exposure to provider changes. So, for instance, if a health care provider bills $3,000 for a procedure, and then increases it to $4,000, the network provider’s fixed charge of, say, $900 remains the same.
The alternative is reimbursement methodologies that pay a percentage of the billed charge, which rise as the bill increases. This fully exposes whoever is paying the claim to whatever the providers want to bill.
Why is the network with the highest discount not always the best option?
When evaluating networks, focus not only on the network discount but also the unit of cost, or what the service actually costs. Although the discount can look good, it doesn’t tell the whole story because providers don’t bill the same. Typically, hospitals owned by for-profit entities have a higher billed charge structure than not-for-profit hospitals. So, an appendectomy at a for-profit hospital may have a 75 percent discount for a final procedure cost of $15,000. However, the same appendectomy at a not-for-profit hospital might only have a 30 percent discount but just cost $9,000.
In addition, facilities make charge master — the master list of what they bill for services — changes throughout the year, depending on financial goals. These increases aren’t across the board because some service lines are bigger revenue drivers.
How does the network contractor work with self-funded businesses?
A self-funded plan sponsor contracts with a rental network to help manage costs and plan ahead. For example, one rental network used multi-year contracts to limit uncertainty and keep costs low. By offering stability to the health care providers, who also are trying to budget, it could mean a cost break.
A network contractor shares management reports with self-funded entities to show what they are spending at each facility and the average cost per day. The rental network also can report upcoming negotiations and cost increases that are locked in, giving businesses greater control.
When looking for a health network, what should you ask?
Health plan sponsors need to look for stable, broad networks with good geographic coverage. You don’t want to contract with a network where providers are coming in or out, or that doesn’t include one of the area hospitals. Businesses should ask:
- How much turnover is there in your network?
- Do you anticipate any major provider terminations in the next 12 months?
- What is the network doing with respect to transparency around costs for certain procedures, as well as being able to provide answers about quality?
Another factor is size — a network provider that does a lot of business can use that to leverage better rates from health care providers. Ask about additional services, such as customized directories, and how much help the network will provide to resolve issues related to the pricing of claims. Finally, determine how flexible the network is in addressing issues important to you.
Jamie Huether is regional vice president, network management at HealthLink. Reach her at (314) 923-6756 or firstname.lastname@example.org.
Learn more about HealthLink's broad network of contracted physicians, hospitals and other health care professionals on their website.
Insights Health Care is brought to you by HealthLink
Middle market manufacturers often think workers’ compensation and disability are uncontrollable costs items. However, it’s more important than ever to change this way of thinking.
“Workers’ compensation is a significant variable cost element for manufacturers,” says Joe Galusha, managing director and leader for casualty risk consulting at Aon Risk Solutions. “It’s an area where controlling workplace injuries and their associated costs can actually become a competitive advantage.”
“We’re coaching our clients to take more responsibility over workers’ compensation and disability prevention, as well as claim management,” says Mike Stankard, managing director, Industrial Materials Practice, at Aon Risk Solutions. “If they do, there’s a significant opportunity to lower costs, and with that comes boosts in productivity, morale and many intangibles.”
Smart Business spoke with Galusha and Stankard about why workers’ compensation and disability management is crucial as well as cost containment and reduction strategies.
What’s the manufacturing landscape today?
Post-recession manufacturing activity is increasing, partially due to repatriation. But with that comes payroll growth, and then typically growth in workforce costs, which for manufacturing can largely be workers’ compensation and disability. There’s also negative trends related to the profile of the typical American worker that will compound the current challenges, so manufacturers that don’t put more effort into managing injuries and related costs may be at a disadvantage.
What workforce demographic trends make this management so essential?
About one-third of adults and almost 17 percent of youth are obese, according to the Centers for Disease Control and Prevention. Obesity drives comorbidity and complexities in an individual’s health, creating a link to the cost of care and recovery from injury.
At the same time, workers 55 and older are expected to be nearly 20 percent of the workforce within a year. A number of physical impacts — decreased strength, more body fat, poorer visual and auditory acuity, and slower cognitive speed and function — come with aging and affect a workers’ ability to recover from injury. People over 60 also are much more likely to be obese.
These trends not only affect employment-related injury costs, but also productivity and business continuity costs when workers are absent for non-occupational injuries.
How can big data be used as a tool here?
There’s never been as much data available for a nominal cost — the challenge is leveraging it. You need the right data at the right time to compare it to the right things. When benchmarking against other companies or applying data sets to your environment, jurisdictions, evaluation base and the age of the benchmarking sources are important to ensuring your data is pure.
Although there are external sources, many times third-party administrators (TPA) or insurance carriers have already done a tremendous amount of data mining and predictive modeling. Businesses just need to know it’s there and to start using it to drill deeper into the cause of loss and the cost drivers of workers’ compensation.
What are some best practices for managing workers’ compensation and disability?
The secret is preventing injuries and creating a healthy workforce. But injuries will occur, so focus on responding quickly with the right amount of effort at the right time on the right claim. Predictive modeling can help identify the types of claims likely to become more costly.
Understand what’s driving your costs by doing a baseline assessment of cost drivers and utilizing benchmarking to drill down. Then, align the incentives of all internal and external parties — TPA, carrier, broker, and vendors involved in loss control and claims management — to focus on the cost-driving elements, using a dashboard to monitor performance. This creates a sustainable loss control and claims management effort.
Many organizations need to align all stakeholders — human resources, finance, legal, operations, etc. Also, combine the efforts of health and wellness with workers’ compensation and safety. A streamlined approach creates a healthier workforce, reducing injuries and their costs.
Joe Galusha is a managing director, leader for casualty risk consulting at Aon Risk Solutions. Reach him at (248) 936-5215 or email@example.com.
Mike Stankard is a managing director, Industrial Materials Practice at Aon Risk Solutions. Reach him at (248) 936-5353 or firstname.lastname@example.org.
Hear more expert advice about workers' compensation and disability management in manufacturing by visiting our archived webinar.
Insights Risk Management is brought to you by Aon Risk Solutions
Health savings accounts (HSAs) are a savings vehicle increasingly being used to offset health care costs and improve awareness when utilizing health care simply because there is additional skin in the game. Further, HSAs provide potential savings and accumulation of assets that work well with long-term financial planning.
“HSAs encourage us to be better consumers, plan ahead and consider the ramifications of health care, as it applies to your long-term financial plan,” says Michael Bartolini, President and CEO of First Commonwealth Insurance Agency.
“It might be a very good opportunity to save more tax-deferred and tax-free money, depending on your situation,” says Nancy Kunz, Lead Financial Planner at First Commonwealth Financial Advisors.
Smart Business spoke with Bartolini and Kunz about how health savings accounts operate and where they fit in with your financial planning.
How does an HSA work in conjunction with your health insurance?
Many people are going to a high-deductible health care plan that has premium savings as a result of the larger upfront deductible. The idea is to shift those premium savings to an HSA, which can be used to pay for unreimbursed medical expenses on a pre-tax basis. The list of applicable expenses is long and includes dental, vision, long-term care insurance premiums, home improvements for medically necessary conditions, etc.
An HSA does not have to be provided by an employer; it can be set up on an individual basis. You also are able to accumulate funds year after year, with the idea of using those dollars against future medical expenses.
The current annual contribution limits, which tend to increase, are $6,450 for a family or $3,250 for an individual. If you are over the age of 50, you are able to contribute an additional $1,000.
How does this differ from a flexible spending account?
Typically provided by employers, a flexible spending account (FSA) works on a pre-tax basis for many of the same unreimbursed medical expenses, but the money does not roll over to the following year. If the monies that are in the FSA are not spent by the end of the calendar year, they are lost. Unlike an HSA, all monies you plan to contribute to the FSA throughout the year are available as soon as you sign up, whereas only the actual contributions are available in an HSA.
How does an HSA help you better manage health care expenses?
When something hits your pocket or you have a new cost, it causes you to be more responsible and a better consumer. If you have to pay $2,000 first with the high-deductible health plan, you’re going to be more mindful of where you go for health care expenses, including which hospital or provider you choose for a procedure.
The economics of health care don’t follow traditional economics where you choose wisely based on price points and/or quality. What one provider may charge for an MRI versus what another provider charges could be very different, but you’re not likely to care if it’s a $10 or $15 copay. We don’t have the mindset that even if insurance companies are paying, so are we — one way or another.
HSAs and high-deductible health plans with their greater level of upfront deductible pushes consumers to exert more energy to pick up the phone and find out what a procedure costs. In addition, many health insurance carrier websites are starting to populate this kind of transparent data to show provider price points.
How does an HSA fit into your overall financial plan?
An HSA can act as another retirement vehicle, especially if you start young enough to accumulate funds without having to — or choosing not to — use those dollars against medical expenses. Once you’ve reached age 65, HSA funds can be used without penalty for any purpose. An HSA also will follow you wherever you go; it’s not tied to an employer.
Many people have reached their maximum on 401(k) or IRA contributions, so depending on your age and health needs, this may be an option to look at seriously for tax benefits and long-range financial planning.
Michael Bartolini is president and CEO at First Commonwealth Insurance Agency. Reach him at (724) 349-6028 or email@example.com.
Nancy Kunz, CFP®, ChFC®, CLU®, is lead financial planner at First Commonwealth Financial Advisors. Reach her at (412) 562-3232 or firstname.lastname@example.org.
Insights Wealth Management is brought to you by First Commonwealth Bank
Virtually every business and individual borrows money at some point. Although there are many different loan types available, some universal concerns apply to every loan. Borrowers need to understand these issues and know that they may be able to limit their risk through negotiating their loan documents.
“Borrowers don’t always fully appreciate the risks they are taking when borrowing,” says Catherine A. Marriott, a member at Semanoff Ormsby Greenberg & Torchia, LLC. “Often, a default which could have been avoided can result in acceleration of a loan, putting personal and business assets at risk.”
Smart Business spoke with Marriott about what provisions counsel should review, whether or not he or she participates in the negotiations.
What are issues borrowers should consider?
Often, borrowers extend lines of credit via a simple modification document, without reviewing the documents signed when the loan was first obtained. In doing so, they run the risk of violating representations and warranties that were true when the loan was first made, but are not necessarily true when the loan is modified. Further, borrowers may not be aware of operating and financial covenants that apply to their business, and often think that because they have not had any issues in the past, there is no need for concern now. While that may be true, reviewing the initial documents is critical in avoiding defaults going forward, as circumstances and goals may have changed.
For new and existing loans, borrowers must be sure that they understand:
- All business terms, such as the monthly payment obligation, interest rate, amortization term, prepayment penalty, and operating and financial covenants.
- What collateral is pledged for the loan, including security interests in equipment, inventory and accounts receivable, and, most importantly, personal guarantees.
- The remedies that the lender has upon a default, including confession of judgment for money or possession of real property, and what effect enforcement of these remedies could have on business and personal assets.
What should be considered regarding personal guarantees?
Many borrowers form entities to keep business and personal assets and liabilities separate. Notwithstanding this goal, principals of small and midsize businesses are almost always required to personally guarantee business loans, resulting in risk to personal assets. Although these individuals are aware of their personal liability, the extent of their exposure may not truly be appreciated.
How does confession of judgment work to increase borrower risk?
Confession of judgment is a powerful remedy available to commercial lenders in Pennsylvania. It allows a lender to immediately obtain a judgment against a borrower or guarantor (or both) for money or possession of mortgaged property. The money judgment will include the accelerated amount of the balance of the loan, plus interest, late fees, attorney’s fees and costs of collection. A borrower or guarantor will have the opportunity to open the judgment only after it is entered, rather than defend the matter before it becomes a judgment. An attorney can advise of the risks and consequences of confession of judgment.
When should counsel be reviewing the loan documents?
Certain loan provisions are legal in nature, so borrowers should consult with an attorney to understand the legal risks. By doing so at the outset, counsel can advise not only on whether borrowers are receiving market terms, but also can assist with modifying or eliminating provisions that are negotiable. Counsel can make sure that borrowers understand their obligations, and that the loan terms adequately address the borrowers’ needs and business goals. The later counsel gets involved, the more difficult it becomes to improve the loan terms.
Even if a borrower has never had problems with its loans or lender, things can happen. Considering what is at stake, all borrowers should strive to minimize their risk. Spending a little time and money now to protect business and personal assets in the future is invaluable.
Catherine A. Marriott is a member at Semanoff Ormsby Greenberg & Torchia, LLC. Reach her at (215) 887-0200 or email@example.com.
Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC
A data center is the infrastructure a business uses to house its IT assets — space, power, cooling, network connectivity, wiring, etc. Depending on the business’ size, it may be a spare closet, a dedicated building or space leased at a public data center.
“The data center itself is infrastructure and doesn’t generate revenue or create differentiated business value,” says Mike Tighe, executive director, Data Products at Comcast Business. “So, the CFO frequently says, ‘Rather than utilize precious capital to build or expand a data center, there are other options including great public data centers where we can lease space.’”
Smart Business spoke with Tighe about data center best practices, including network and bandwidth considerations.
Why are data centers so important today, and what’s in store for the future?
The function of a data center is to ensure availability of IT applications and data. If employees don’t have access, they can’t be as productive and in some cases, the business can’t run. The trend to place IT assets -—applications, servers and storage — in public data centers is rapidly evolving for businesses of all sizes, either as a main data center or as part of business continuity strategy.
Over the next five years the trend of renting rather than owning IT infrastructure will accelerate as businesses utilize cloud-based infrastructure and applications. This is not just because of better economics, the ‘cloud’ enables rapid deployment and the ability to scale applications that drive better productivity.
When should you look at outsourcing a data center?
When IT becomes an important component of how you run your business, you have to ensure high availability. If, for example, you install specialized applications used for resource planning and creation of content, but the server starts going down because of power or network connectivity loss, it impacts your business’s ability to run.
Another factor is economic. As businesses make IT decisions, they may not have the capital to build or upgrade data centers, so they’ll look at alternatives.
What are some options to consider with public data centers?
By their very nature, there are more capabilities in a public data center because everyone is sharing the cost of the generator, the physical security monitoring, having multiple network providers, etc. However, some things to consider are:
- Physical security procedures.
- Redundancy of critical components.
- The ability to expand as your IT infrastructure requirements increase.
- Network for primary and backup connections. What providers have extended their network into the data center to provide connectivity and ensure access?
- Location. Regional events including loss of power and natural disasters dictate that the backup site be located far enough from the main data center so as not to be affected by a single incident. Hurricane Sandy certainly brought home the point that a redundant data center far enough inland on a separate power grid helps ensure application availability.
How can companies build the right network?
Strong network connectivity becomes more important as IT assets are put into public data centers. Know how much your company’s bandwidth requirements are growing, and your network’s ability to scale for future requirements. On average, over the past decade, a business’s bandwidth requirements have grown around 50 percent per year. Look at network technologies that can cost-effectively scale — from 10 megabytes, an average site requirement, to one gigabyte, for example. Ethernet technology, which local-area networks are built on, is one solution that businesses are leveraging for their networks.
How do data center solutions impact a business’s bottom line?
With the economic downturn, use of company capital became a focus. Executives decided that the data center, while important, doesn’t produce any intrinsic value. And you can lease the space and preserve capital for projects that improve the bottom line. Companies can rent space by the square foot, rather than having to build another data center as IT needs expand.
Mike Tighe is a executive director, Data Products at Comcast Business. Reach him at (215) 286-5276 or firstname.lastname@example.org.
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You are insured and sustained a fire loss. The township has now told you to demolish the damaged and undamaged portions of your building, and when you re-build make sure the building is fully sprinklered. How will you pay for these additional costs?
“The additional costs to comply with an ordinance due to the loss can be substantial, such as the loss of value of an undamaged portion of the building, demolition costs and the additional costs to reconstruct a building to comply with the ordinance,” says Phil Coyne, vice president at ECBM.
Smart Business spoke with Coyne about how building ordinance or law coverage would fill this gap in your standard property insurance policy.
What is ordinance or law coverage?
Standard property ‘cause of loss’ forms have a coverage exclusion for loss or damages that occur as a direct result of enforcement of any law or ordinance regarding construction, use or repair of the property, which includes demolition. Three coverages are available to address this exclusion under the ordinance or law coverage of your property loss form:
- Coverage A — Loss to the undamaged portion of the building. The limit should be included in the building limit.
- Coverage B — Demolition coverage, the cost to demolish and clear the building. The amount of coverage should be determined.
- Coverage C — Increased cost of construction, which covers the additional costs to comply with the ordinance or law. Limits should be determined.
In some cases, Coverage B and C are combined under one limit.
Why is ordinance coverage necessary?
Each state, county, township and municipality chooses to adopt and amend national codes, such as the National Fire Protection Association’s Fire Code, according to their needs and concerns. It can be an ever-changing landscape, and many times older buildings are grandfathered or exempt from these codes until a loss occurs.
The coverage should be on every insured’s wish list. It’s probably most critical for buildings that are older, or have older portions, and may have grandfathered codes or regulations for square footage and density. Many lenders have a requirement for this coverage in mortgage agreements.
What triggers the coverage?
There has to be a covered cause of loss that results in the application of a building ordinance. For instance, in 1990 a city ordinance said every new building in excess of three stories had to be sprinklered. Your building is four stories and built in 1985, so the ordinance doesn’t apply. However, the ordinance also might say if 50 percent of an older building is damaged, the entire building has to be demolished and rebuilt. If, after a large fire, you must demolish the building and put in a sprinkler system, this triggers your ordinance or law coverage.
Where might this coverage not apply?
The ordinance or law coverage will not apply if an insured was required to comply with an ordinance and chose not to. Let’s say, a township requires buildings with four or more apartment units to have hardwired smoke detectors and you decided not to install them. If you chose not to install them and then the building sustains a covered loss, the coverage won’t apply.
The three ordinance coverages all have to do with direct loss to the building or property. There’s no provision for the loss of business income. Standard business income policies exclude coverage for the increased period of restoration due to the enforcement of laws or ordinances. Therefore, you would need to endorse your policy to pick up coverage for this increased time.
Also, anything excluded from the policy would not be covered, such as flood loss. Every building ordinance and business income policy excludes any costs regarding pollution or mold and fungi.
What should you consider when buying this coverage?
Look at the current value on your building(s) and what coverage you get under your policy form because each insurance company adapts it differently. Have a thorough discussion with your broker regarding what coverage you think you need and what you can actually get. The insurance company may limit the amount of coverage, based on your premium and portfolio size.
Phil Coyne is a vice president at ECBM. Reach him at (610) 668-7100 or email@example.com.
For more information about risk management, visit ECBM's blog.
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