The number of seismic changes in the way business is done during the past 10 to 15 years is unprecedented. Just ponder the magnitude of all that has occurred as you read this list: Cell phones became ubiquitous, and computers with 24/7 Internet access moved from the strident screechy tones and beeps of telephone dial up to today’s broadband connections that transmit huge amounts of data in seconds, resulting in virtually everyone being constantly connected.
Instead of getting the latest news at 11 p.m. and sleeping on it, we now receive a constant stream of information in real time. Reaction time has moved from digesting the myriad of hard copy reports that awaited you at the office each morning to now making decisions simultaneously with that first sip of morning coffee while reading data on a smart devise.
In addition, the era of easy money is also long gone, along with what seemed to be extraordinary and unlimited growth where the average company would do just fine, propelled by a rising tide of good times.
The tragedy of Sept. 11 jolted the world permanently, altering the way people live and think about the future. There are no more givens that one will grow up, go to school, get a job, have a family and live happily ever after. Two major wars have lingered beyond anyone’s worst expectations. Then came the economic meltdown of 2008 when the wheels came off the wagon and the music stopped playing while everyone frantically searched for too few remaining chairs. With the stock market crash and the banking/lending meltdown, even the most sanguine turned jaundiced toward their views of government, business and what the future holds.
Even those businesses naively ensconced in their fairytale cocoons realized it was no longer business as usual. What worked for years would no longer move the needle. Customers’ attitudes and loyalties could no longer be taken for granted as businesses acknowledged that future success and prosperity could well be the exception, rather than the rule.
Does this mean that everything that we’ve learned in the past has gone swirling down the drain, including basic business principles and practices that were sacrosanct?
There are no pat answers to deal with almost revolutionary metamorphoses, if you don’t change, you most certainly will become a victim of change.
Welcome to the new ‘now.’ If you’re leading an organization today, you must devote the majority of your time and efforts to looking ahead and trying to find the answers before your competitors even know the questions. Change has become how we must do business. What worked for your company previously is, at best, a fleeting memory overshadowed by the customers’ mindset of “What have you done for me today?” In short, there are no guarantees other than you’ll have to continuously get better or be gone.
A scary thought? It all depends how you approach this new reality. With changes come new opportunities, new ground rules and the ability to find a better way and deliver that better way more efficiently and effectively.
So how do you go about preparing for the future? Certainly use all of the new tools that are at your fingertips. Instant information on the Web is available to all of us with a few keystrokes directed at a growing number of sophisticated search engine. Data that took weeks and months to gather can now be gleaned in minutes or hours. While Americans are graying as the over-50 crowd mushrooms, don’t ignore the young who know only this new way of life. Does this mean you should add a few 14-year-olds to your board? Maybe not a practical idea, but be sure you’re at least talking to a couple of them on an ongoing basis. Ideas come in many forms, many times from the most unlikely.
You must retrain your team to challenge virtually everything and find a better way, envision products, goods and services that no one knows they even need yet, and create a strategy to deliver them compellingly and creatively.
Will there continue to be business casualties? You bet. Much more importantly, however, there will be many business successes for those companies led by visionaries who answer that morning wake-up call each day with an open mind to the new now.
Michael Feuer co-founded OfficeMax in 1988, starting with one store and $20,000 of his own money. During a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling this retail giant for almost $1.5 billion in December 2003. In 2010, Feuer launched another retail concept, Max-Wellness, a first of its kind chain featuring more than 7,000 products for head-to-toe care. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. Reach him with comments at firstname.lastname@example.org.
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If you’ve been running a business for some time, then I’m sure you know some CEOs who are struggling to keep their business going or have already closed their doors.
In some cases, the cause might be the economy. Maybe they were in an industry hit particularly hard and were crippled by the drop off in sales or maybe a large customer folded or took its business elsewhere.
The most troubling aspect in many of these situations is that the person in charge didn’t necessarily do anything wrong. The leader made all the right calls and did everything by the book but still ended up with a struggling business.
After you’ve been running a business for a while, you realize that even doing everything right doesn’t guarantee success. The harshest lesson to learn is that you can’t control everything and bad things happen to good people and good companies.
The real test for many begins not with how they deal with success but how they deal with setbacks. Most have never tasted defeat before, and it can be a difficult experience. One day they are the CEO of a successful and respected company, and the next day they are sitting at home wondering what they could have done differently. The experience can be depressing for some and overwhelming for others.
But there’s a saying that as one door closes, another opens, and that certainly holds true with business. If you find yourself in the situation of leading a struggling business, you need to approach it as a challenge. Don’t waste time lamenting what could have been; focus your energy on what could be. Maybe you need to tweak your business, or maybe you need to completely reinvent your company, but the key is to do something.
Take McDonald’s for instance. In the early 2000s, the company was distracted by multiple acquisitions, a massive expansion plan and a menu cluttered with items consumers didn’t necessarily want. The stock price dropped to $12. The company reinvented itself by returning to its roots, divesting of the distracting side businesses and revamping its menu and restaurants to appeal to consumers. The results changed the perception of McDonald’s from a restaurant in decline to the undisputed king of the industry with a stock price in the $80 range.
Another example is IBM. The company was saddled with low growth after trying to dominate the consumer and business hardware and software segments, and its stock dropped to $10. The leadership refocused the company on business software, a few key business hardware components and IT services. It now dominates the business IT services category and its stock commands almost $200 per share.
While you may not be as large as IBM or McDonald’s, the point is that business is constantly evolving. Sometimes it means getting back to your roots, and other times it means abandoning one line of business in favor of another.
Take a hard look at your company and think about what you could do differently. Are there some product lines that are better than others? What if you focused on your core products and did them better than anyone else? Can you follow the lead of McDonald’s or IBM to chart a new course?
If it’s too late for that, look at your current situation and find a new path to success. You led a successful business once, so you can surely do it again. Reach out to friends and colleagues to find out where the opportunities may be in the market and think about a way they could invest in your new venture. You never know who may be able to lend a helping hand. One door may have closed in your career, but with some entrepreneurial thinking, the help of some friends and prayer, another will open. The best is yet to come.
Fred Koury is president and CEO of Smart Business Network Inc. Reach him with your comments at (800) 988-4726 or email@example.com.
To become a PPO (no, not that one — rather, a “peak performance organization”), it is a precondition to hire and retain A players. It is just that simple.
No matter the state of the economy, it is never easy to find A players who possess an insatiable appetite for curiosity and a “lifelong learning” mentality. You need to know, first and foremost, what to look for and how to attract them and then, how to inspire and motivate them as professionals. Here are a few steps your organization can take.
Step 1: Identify stretch goals.
PPO associates need to be inspired by their managers to continuously perform at the highest level. They want to be kept on their toes and be challenged. They must want to develop themselves, to achieve the best they can and, because of this, contribute to the success of the organization — again, lifelong learners.
PPO managers, therefore, should consciously inspire their associates by giving them interesting work, challenging tasks and increased responsibilities and stressing that they should be proud of their own achievements and those of the organization. They stimulate self-confidence, an entrepreneurial attitude, firmness, a can-do attitude and a winning mindset in associates.
PPO managers raise the performance of their people and themselves by simply setting high standards and stretch goals. It’s easier said than done, but it works.
Step 2: Start inspiring associates.
There are two main ways to inspire your associates: by changing your own behavior to be more inspirational, and by creating conditions for your associates that increase their motivation. Below are some ideas for both techniques.
Five proven tips on how to begin the process:
1. Be passionate about the goals of the organization, show emotion and generate enthusiasm for these traits in your associates.
2. Be connected with your associates by showing real interest in them and finding out what motivates and inspires them and actively looking for their ideas and opinions.
3. Be (somewhat) unconventional and take personal risks by doing things differently and operating outside “normal” organizational boundaries and outside your comfort zone and letting your associates do the same.
4. Be a good listener with your associates. They have more insight than you give them credit for.
5. Be a great storyteller who is able to package messages in a more appealing format that captivates associates.
Now that you have “inspired,” how do you move on to “motivating” your associates?
That is step three. Below are five proven tips to motivate your people — who are your most valuable unlisted assets.
Step 3: Motivate your associates.
1. Paint your associates an attractive picture of the future of the organization and their place in it. Put another way, explain the “whats” and the “whys” of how their hard work is benefitting the company.
2. Create an environment of trust and openness with management. Be willing to share with them the good, the bad and the ugly of your organization.
3. Give your associates work that challenges and recharges them. Allow them to take risks and learn from the experiences.
4. Provide your associates with the opportunity to get into contact with the beneficiaries of their work (such as the customers). The dividends will be immense.
5. Recognition, recognition, recognition. We never say thank you enough. Recognize your associates’ many achievements in public. Let everyone know of his or her achievements and advancements. Do it, and it will motivate that individual but also others around him or her to do better.
Put these 10 tips to work in your organization and watch your performance and profitability skyrocket.
G. A. Taylor Fernley is president and CEO of Fernley & Fernley, an association management company providing professional management services to nonprofit organizations since 1886. He can be reached at firstname.lastname@example.org, or for more information, visit www.fernley.com.
Richard Reif is well-versed on the subject of health care reform — and he should be. He had a 13-year head start on the government.
In 1997, more than a decade before President Barack Obama signed the Patient Protection and Affordable Care Act into law, Reif worked with the leadership team at Doylestown Hospital to build a strategic plan around a series of building blocks designed to promote many of the same areas of emphasis now outlined in the federal act.
Reif, the hospital’s longtime president and CEO who will retire in December, wanted to build an organization in which health care providers believe they have a duty to preserve health as much as they have an obligation to cure illness.
He wanted an organization that fostered alignment among all staff members who came in contact with a given patient — doctors, nurses and support staff all united with a common goal of providing a high-quality and seamless patient experience.
“We had a series of building blocks that I believed would be paramount to our long-term success,” Reif says. “I testified before Congress that year on the issue of how we needed to transform health care. It was the origin of a lot of things that were proposed in the (Patient Protection and Affordable Care Act). We have used those fundamental building blocks to help drive who we are, always coming back to what benefits the patient and the patient’s family.”
But building that kind of organization wasn’t as simple as posting a mission statement over the entrance door. It required Reif and his team to define what Doylestown Hospital stood for as both a business and a health care entity and what it meant to work for the hospital. He then had to focus 2,000 associates and 900 volunteers on those core beliefs, keeping the message in front of existing staff and introducing the message to new staff.
In short, it took consistent and tireless communication.
Know who you are
Every business has an identity. Defining that identity, however, can be a difficult and ongoing process. Organizations, like the people who comprise them, don’t easily fit into prefabricated molds.
But defining what you are as an organization is essential to developing your mission and core values.
At Doylestown Hospital, Reif draws heavily on the organization’s history to chart a course for the future. The Village Improvement Association, a local women’s group that still owns the hospital, founded the hospital in 1923. The hospital was founded as a product of one of the association’s missions — to promote health and wellness in the Doylestown community.
With that as a guiding beacon, Reif put his effort into preserving and improving the hospital as a resource for health and wellness in the immediate area, closely embracing that identity.
“We don’t do a lot of teaching and we don’t do a lot of research,” Reif says. “We do a bit of both, but that isn’t our primary emphasis. We want to stay focused on our patients and serving them to the best of our ability.”
Often, companies and organizations try to define themselves by the business they conduct instead of the people they serve. Your list of clients might be impressive, your product might be cutting-edge and your services might have helped you carve out a lucrative niche.
But if you can’t identify the positive impact your company makes on the people you ultimately serve, you’re not doing a good job of identifying your company’s reason for being, which in turn, could have a damaging effect on your ability to promote your culture and motivate your employees to do their best work.
“Whether I’m relating the concept to people in this area or outside this area, you tend to find a universal problem in that people can have a tendency to lose where their focus is meant to be,” Reif says.
“Sometimes, you worry more about the business scale of what you’re doing as opposed to what and who you are ultimately impacting. That’s especially important in our field due to the nature of our work. Hospitals and schools are two great examples of organizations in which you should know what you should be doing.”
Reif learned the value of developing and maintaining an organizational identity early in his career, when he worked at a pair of Quaker hospitals.
“I came to learn a lot about myself as well, as well as what you need to do to emphasize the importance and value of the people you serve,” he says. “I believe my job is to create an environment where those people can achieve their sense of inspiration.”
To build an organizational identity around developing relationships and serving your customers, you need to give your employees — especially the employees who directly face your customers — the tools and resources necessary to foster those relationships and maintain them over the long haul.
“One of the things we do and communicate is the whole issue of our values and our responsiveness and giving the people the tools they need to be successful,” Reif says. “It can be continuing education, it can be the right equipment, it can be the right work environment. It can be that you try to cultivate a sense of respect between departments or a sense of functional respect between doctors and associates. But you’re ultimately trying to focus on a series of things that are all related back to the mission and the core values.”
Live the culture
Reif couldn’t build an organization that promotes alignment and accountability without a strong culture to serve as its backbone. Building and maintaining the culture was an essential first step.
A company’s culture lives and breathes through the actions of its employees. But you don’t get the desired actions without employees who have a firm belief in the mission and values of the organization. It needs to start with the hiring process, when you identify the job candidates who you think have the personality and individual values needed to mesh with your organizational values.
But if you don’t seed and cultivate your culture within those people, all you’ll ever have is raw materials and a workforce full of unrealized potential.
That’s why Reif gets involved in the training of new Doylestown Hospital employees from their first week on the job.
“I am in my 24th year now in this position, and I do virtually every new associate orientation,” Reif says. “We start with the premise that we are all aimed in the same direction, and I emphasize our sense of responsibility to our mission and our values. We reinforce that in any way we possibly can, no matter what topic. Where we are, how people are evaluated, how we make decisions — it always comes back to the mission.”
Once new employees are up to speed with how health care and business are conducted at the hospital, Reif further reinforces the culture through the stories of patients — the consumers of the hospital’s end products and services. By putting a human face on the ultimate product of the work each employee does, you demonstrate the ultimate benefit that the work of each person has to the end consumer.
“We have a major fundraiser every spring, and this year, we had 80 to 100 women involved,” Reif says. “As I was thanking them for their involvement in the effort, I reminded them why we were raising the money. This year, it happened to be that they’re raising money for a maternity unit, so in my presentation, I put pictures of four newborn babies on the screen.
“Another time, at the end of our budget approval for the following fiscal year, we had a board meeting. I showed our board 10 pictures of patients living with cancer. They’re people who we are treating, who agreed to be photographed for this presentation. I put their pictures in front of everyone and told their story. In both cases, showing the babies we delivered and the cancer patients we’re treating, it reminds us why we’re here as an organization.
“We share stories of patient successes, and even the times when we fail a patient. We need to learn from those stories as well. It always comes back to who we are serving.”
Reif says the real-life examples serve as a means of showing empathy. Effective leaders need to foster a sense of empathy within their organizations. That includes empathy between employees and management and empathy between those inside and outside the company.
If management does a good job of instilling a sense of empathy within the culture, that feeling will trickle down to the relationship your employees have with the people you serve — be they customers, clients or, in the case of Doylestown Hospital, patients.
“You have to be empathetic to your people,” Reif says. “You have to listen. If I’m showing empathy to the people who work here, the associates and why we value that, they are going to be more empathetic with regard to their relationship with the patients.
“If I remember who is providing the patient care and I treat them with respect, they’re going to continue that relationship with the people they come into contact with, which includes the patients and their families. Again, it’s always coming back to who you serve and what you are as an organization.” <<
How to reach: Doylestown Hospital, (215) 345-2200
Richard Reif, president and CEO, Doylestown Hospital
The Reif file
Born: I was born in Baltimore. I actually went on to become the CEO of the hospital I was born in, Union Memorial Hospital.
Education: Zoology degree from the University of Maryland; Hospital administration degree from the Medical College of Virginia (now VCU Medical Center).
First job: My first real job was as a Good Humor truck driver when I was 18. The following year I started working in hospitals.
What is the best business lesson you’ve learned?
I learned to be genuine and be yourself, and find an organization that values you. Those are the two most important things: be sincere and fit the organization.
What traits or skills are essential for a leader?
Empathy, listening and consensus-building. Those are three things that Quakers do very well. In my time at Quaker hospitals, I learned to conceptualize, think long-term and be a steward to the community.
What is your definition of success?
It is a statement more than a set of criteria, and I can quote it from you. My wife and I both live by it: “I expect to pass through this world but once. Any good therefore that I can do, or any kindness or abilities that I can show to any fellow creature, let me do it now. Let me not defer it or neglect it, for I shall not pass this way again.” (Attributed to William Penn.)
New research findings, new technologies and the ever-more urgent need for speed and cost-efficiency are converging to drive a revolution in medicine. Supporting this convergence are high-speed, secure telecommunications networks, enabling unprecedented teamwork among institutions, researchers, practitioners and patients to create a new paradigm — telemedicine.
“Telemedicine is the exchange of medical information via electronic communications among dispersed facilities and patients to improve health,” says Mike Maloney, vice president of Comcast Business Services. “The goal of telemedicine is to improve access to care, and Ethernet enables high-bandwidth telemedicine applications including remote consultations, remote monitoring and continuing medical education.”
Smart Business spoke with Maloney about how telecommunications and medicine are joining forces to improve patient health.
How does telemedicine work and what are some examples of its use?
Telemedicine breaks down the barriers of distance and time to improve outcomes, especially for emergencies such as stroke, heart attack and trauma. It can be used in rural areas where the doctor-to-patient ratio is high and quality care — both routine and emergency — can be hard to reach. In cases where routine check-in supports successful results, telemedicine brings doctors and patients together.
Telemedicine also helps overcome practical barriers. Delivering medical care in prisons, for instance, offers challenges that can be mitigated with telemedicine. And in nursing homes, Ethernet-based services offer a cost-effective network alternative to transporting patients to a medical facility.
In addition, Grand Rounds are used as a teaching tool to permit medical specialists to consult on patient prognosis, evaluate patient status and collaborate with colleagues without leaving their point of care location. Ethernet enables multimedia distance applications such as Virtual Grand Rounds, which uses audio, video and synchronized visuals over the network, dramatically changing the way continuing medical education is delivered.
How does telemedicine create lower costs and better quality treatment for health providers?
As high-speed, high-volume telecommunications overcome time and miles between doctors and patients, the speed of effective care delivery accelerates, and the costs of delivering quality treatment can fall. By being able to activate new users with minimal training and low equipment costs, the flexibility and functionality of Ethernet delivers quality health care into areas that were sometimes previously problematic. Instead of requiring patients to travel, data from individual households can be centralized and monitored remotely. Doctors and patients can communicate without time and money expended on travel or the slow transfer of records. Patient portals permit patients to participate actively in their own cases, send and receive real-time information and take daily steps to better health. As Ethernet services deliver greater bandwidth, collaborations have emerged in every medical specialty.
The financial advantages offered by Ethernet make it a better investment than legacy T1 systems. The bandwidth is multiples of that of legacy systems and can be rapidly scalable to add capacity. This speed and flexibility permits care providers to expand practice areas and collaborate with other growing networks without being limited by technology.
How can health information exchanges (HIE) benefit from telemedicine?
HIE are an important development in transforming health care, relying on secure sharing of electronic patient information among clinicians, administrators and payers. Affordable and flexible Ethernet-based services are ideal for supporting HIE. The key is high bandwidth and low latency in connections among medical facilities, the care team and the patient. When providers can access all of a patient’s information, better treatment decisions are made, resulting in lower costs and improved outcomes.
What are additional applications of telemedicine?
- Telepathology, with which tissue samples can be imaged digitally and transferred to pathology laboratories for review in real time.
- Picture archiving and communication systems, in which large image files can be transmitted, stored and retrieved securely.
- Physician dictation and large data files that can be transmitted instantly.
- Patient care supported by geographically dispersed collaborators with maximized cost-effective results.
What does the future of telemedicine and Ethernet applications look like?
Ethernet is gaining traction in health networks thanks to its network simplicity, high bandwidth capacity, scalable and flexible service provisioning, and significant savings in capital investments for equipment and service deployments. Ethernet handles a high volume of data that permits doctors and researchers to innovate and collaborate in ways never before possible. Health care enterprises should have no trouble adopting Ethernet for network services.
With a robust, scalable backbone, Ethernet costs less than legacy T1 networks, and offers the size and scalability to support applications such as high-definition video that are essential to quality diagnostics and treatment. Market forces further impel this expansion, such as aging populations, widespread increases in chronic illnesses, more patients who desire to receive treatment at home, financial pressures resulting from limited financial resources and the need for ever-greater cost-efficiency and time pressures where patients can’t wait.
The key is robust multidirectional information flow among all involved parties — research institutions, health care practitioners, government and patients. Ethernet communications permit vast quantities of data to be moved securely, accurately and quickly, supporting these new capabilities, delivering critical, cost-management benefits and helping to accelerate this revolution in medicine.
Mike Maloney is a vice president of Comcast Business Services. Reach him at email@example.com.
Insights Telecommunications is brought to you by Comcast Business Class
In the current economic environment, many businesses are finding financing difficult to come by. But with the proper preparation, gaining funding for your business is not impossible, says David Shaffer, director, Audit & Accounting, Government Contracting Industry group leader at Kreischer Miller.
“Getting your business in order and presenting a strong case to your banker can improve your chances of getting financing,” says Shaffer. “It’s not as easy as it once was, but even in difficult economic times, banks and other organizations are still providing financing to businesses.”
Smart Business spoke with Shaffer about how to position your business to succeed when seeking financing.
What does a business need to have ready prior to looking for financing?
Whether you are a new business or have 50 years of history, anyone looking to provide financing is going to want to see the plan of how the business is going to repay the loan. Most lenders do not want to have to liquidate the collateral to collect the loan; they want to set up reasonable terms and conditions so the business can repay the loan, over time, and the lender can make a reasonable profit.
In most cases, this means providing the lender with a monthly budget of the business’s income, balance sheet and sometimes cash flow for 12 months, and an annual budget for at least two years from that point. The lender will use these statements to create financial covenants, so management must be comfortable that they can meet, or preferably exceed, the budgets.
Lenders are also going to review management’s history and the business’s history of repaying debt. If there have been any issues with historical debt, this should be discussed with the lender up front, prior to the bank discovering it on its own.
If you are an existing business, three years of historical financial information should also be provided. Audited financials are best, but in most cases, reviewed financials will be sufficient. If the company does not have audited or reviewed financial statements, compiled or internal financial statements should be provided, but if this is the case, be prepared for more due diligence from the lender. If there have been historical losses or other items that might give a lender concern, discuss the issues with the proposed lender prior to sending.
If this is the first time through the process, owners should consider having their CFO/controller involved, or involve their CPA or legal counsel who is familiar with typical terms and conditions of business loans. But even if you have done this before, no matter how experienced you are, make sure that you have an experienced attorney who has knowledge of these loans review all documents prior to signing.
How long does the process typically take from start to finish?
Most banks need 45 to 60 days from the initial meeting to the time of funding a loan. If the loan is more complex, it may take longer.
What collateral will a lender typically request?
Most banks will request that all business assets collateralize their loan (assuming they are the only lender) and, in most cases, will require the business owners to personally guarantee the loan. If the loan is very risky, they might also request liens on specific owner assets such as stock portfolios, personal home, and/or cash surrender value of life insurance.
What interest rate can businesses expect in the current environment?
Banks and other lenders determine their interest rates based upon the perceived risk of the loan. Most business loans that are not high risk have variable interest rates ranging from prime minus .5 percent to prime plus 1 percent. Fixed rate loans will vary depending on the length of the loan and the collateral.
Other than banks and personal savings/assets, where else can a business seek funding?
President Obama recently signed the Jumpstart Our Business Startups Act, and one aspect of that, called crowdfunding, provides up to $1 million of loans for businesses. Transactions must be administered by a broker or a funding portal that is registered and complies with the Securities and Exchange Commission requirements.
The Small Business Administration and other government-guaranteed loans also provide funding alternatives to businesses. The SBA can provide loans up to $5.5 million. Such loans require a lot of documentation from a business, but their rates are very competitive. In most cases, a bank will still need to be involved to underwrite the loan, and many banks have specific lenders specializing is SBA loans.
Some companies also consider joint ventures. However, this is quite risky because it requires a strong leader to bring together a group of businesses so that each member of the group understands the risks and responsibilities involved. It also requires the involvement of an experienced attorney who can write a joint venture agreement that everyone understands and is willing to sign. Joint ventures are often used to complete a specific project for a customer when one company does not have all the skill sets to complete the contract on its own, so will go out and find a ‘partner’ with those necessary skill sets to propose on the project.
Venture capitalist/private equity is also viable, especially if the business is promising and can grow quickly with the proper funding. Typically, these companies will get an ownership in the business. Some firms have been willing to lend money to a company, but it is typically at a much higher interest rate than a bank may charge. The advantage of venture capital/private equity, however, is that the business now has the network of contacts of the venture capitalist or private equity provider at its disposal.
David Shaffer is director, Audit & Accounting, Government Contracting Industry Group leader, at Kreischer Miller. Reach him at (215) 441-4600 or firstname.lastname@example.org.
Insights Accounting & Consulting is brought to you by Kreischer Miller
When starting a business, owners usually think, not surprisingly, that relationships with their partners will be eternally copacetic. Unfortunately, issues among owners arise and resolution of these issues can be both time-consuming and expensive. A bit of planning at the outset, however, can prevent heartache later.
“Because of unforeseen circumstances which may arise and circumstances which business owners may foresee but choose not to address, I advise clients, at the outset of the formation of their business, that it is crucial for them to enter into a comprehensive agreement with the other owners,” says Craig M. Chernoff, a member at Semanoff Ormsby Greenberg & Torchia, LLC.
“There are many areas to be considered in these agreements and each business is unique,” he says. “It is crucial that business owners consult with their attorneys to sort through these issues and determine the best way to handle them.”
Smart Business spoke with Chernoff about the importance of agreements among business owners.
What is the role of agreements among business owners?
These agreements — primarily shareholder, operating, partnership and similar agreements — address and govern a multitude of situations by setting forth the rights and obligations of business owners across a broad spectrum of areas.
What issues might owners address with these agreements?
These issues can be broken down into four categories as discussed below. How each issue is handled may vary from business to business, and there is no one ‘right’ way or answer. So, consulting with your attorney is vital to ensure that each issue is handled in the best way to suit your business.
- Dispositions of interests upon certain triggering events: What happens with an owner’s interest when that owner dies, becomes disabled, is terminated, becomes bankrupt or divorces? Typically, owners enter into relationships based on various personal and business factors. When a ‘triggering event’ occurs, owners generally do not want to be forced into a new relationship (for example, they do not want to be in business with their partner’s spouse). Typically, agreements provide the business and the remaining owners an option to purchase the interest of the owner affected by the triggering event. The more difficult question is valuation, and how it is to be paid so as not to cripple the business. Other considerations include obtaining insurance to fund the buyout and purchase price discounts depending on the type of triggering event.
- Transfers of interests in the business: What happens when a business owner wants to transfer his or her interests in the business? For example, Trey (75 percent) and Mike (25 percent) own Piper Pipe, Inc. Jon offers to buy Trey’s 75 percent interest in Piper for $10,000,000. If there is no agreement, Trey may sell his interest to Jon, and Jon and Mike would be co-owners of Piper. Because business owners want to control who they are in business with, agreements may provide that an owner may not transfer an interest without first offering to the business or to the other owners on the same terms and conditions as offered by the potential purchaser. If Trey and Mike had an agreement, Trey would offer Piper and/or Mike his interest for $10,000,000. Piper and/or Mike may accept or reject the offer. If they reject, Trey would be free to sell his interest to Jon. Agreements may provide for ‘tag along’ and ‘drag along’ rights. ‘Tag along’ rights allow an owner with the right to ‘tag along’ in a sale by the other owner (favoring minority owners), and ‘drag along’ rights allow an owner to ‘drag along’ the other owners in a sale (favoring majority owners). If there are ‘tag along’ rights, Mike may choose to include his interest in the sale to Jon. If there are ‘drag along’ rights, Trey may be able to force Mike to sell his interests to Jon.
- Management and voting rights in the business: Agreements may provide owners with certain management and voting rights. Depending on the business, one person (or a group) may run the day-to-day operations or have the right to do whatever they want with the business. Owners may vary voting requirements for certain business actions. For example, appointing officers may require a majority, but approving a merger may require unanimity. Owners may also provide a mechanism to break deadlocks, including mediation, arbitration, ‘shoot out’ provisions or even the business’s dissolution.
- Miscellaneous: Anything may be provided for in agreements among owners, if such provisions are not contrary to applicable law. Examples are anti-dilution provisions; restrictive covenants; requirements when additional capital is needed; escrow and voting right provisions upon the sale of an interest; contribution and indemnity obligations; and truncated arbitration or other dispute resolution mechanisms.
What steps should be taken when owners are considering agreements?
When an owner wants to start a business or prepare an agreement for an existing business, the owner should meet with their attorney to discuss which issues are applicable and how to address those that are. It is often prudent to include financial and insurance advisers who may have greater insight into the inner-workings of the business, particularly with regard to valuation of the business.
What is the most common error an owner can make?
The biggest error is not having an agreement or using an ‘off-the-shelf’ agreement. Too often, people tell their attorney, ‘We never got around to signing an agreement, but now my partner and I are not getting along and we cannot amicably resolve our differences. What can we do?’ There are solutions, but resolution of these issues is less time consuming and expensive if there is an agreement in place beforehand.
Craig M. Chernoff is a member at Semanoff Ormsby Greenberg & Torchia, LLC. Reach him at (215) 887-4835 or CChernoff@sogtlaw.com.
Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC
Certificates of insurance play an important function in doing business. Companies need a certificate to get work. A contractor needs one to get onto a jobsite. A trucker needs one to be able to pull up to deliver a load of cargo. A real estate company needs a certificate of insurance to go to settlement to buy a new building.
“It is the lifeblood of industry from an insurance standpoint,” says Joyce Shefsky, vice president, client services at ECBM. “There are so many issues involved with certificates, it can be a time-consuming and difficult process to get them issued and accepted.”
For example, a bank or general contractor will thoroughly examine a certificate of insurance to make sure everything is in compliance with the contract requirements, she says. If it isn’t, the insured could be held in breach of contract, or business could be delayed while the certificates are amended.
Smart Business spoke with Shefsky about the role that certificates of insurance play in doing business and how to properly use them.
What is a certificate of insurance and what should be included on it?
A certificate of insurance is evidence that certain insurance coverage is in existence as of the date the certificate is issued. It shows the insurance carrier providing coverage, the effective and expiration dates, policy numbers and limits of insurance.
Certificates of insurance are usually issued in conjunction with a contractual relationship between a third party and the named insured on the insurance policy. The contract typically stipulates the coverage and limits required.
It should include:
- Current policy information (limits of insurance, policy term, etc.)
- Name of the insurance carrier and the NAIC number
- Signature of agent
- Correct name and mailing address of certificate holder
If additional insured status or waiver of subrogation is required, a copy of the endorsement to the policy should be included.
Certificates of insurances are very critical to the construction industry, although other industries depend on them, as well. Often, it is the last thing businesses deal with, and it can be very costly if the insurance requested is not what the named insured has purchased. For example, a company will bid on a construction contract and not bother looking at any of the insurance requirements. Then, when it gets a job, all of a sudden it has to purchase more coverage, and its profit decreases or it is held in breach of contract.
When employers receive certificates of insurance, how should they review them?
The contractually required insurance, amounts, types of coverage and endorsements should be compared to the certificate provided. A procedure also should be in place to verify receipt of renewal certificates when the policies expire. In addition, a system to manage storage of the certificates is crucial; at the time of a loss, it is critical that the insurance certificate be available.
When requested to provide a certificate:
- Verify that your current coverage meets or exceeds the required insurance; this must include all endorsements requested.
- Always have your insurance consultant review the insurance requirements prior to signing a contract.
- Realize that adding additional insured status means you are sharing your limits with the additional insured, and you may want to consider purchasing higher limits to protect yourself.
What incorrect assumptions do employers make about certificates of insurance?
Some business owners mistakenly assume that certificates of insurance are binding. They might wrongly believe that just because a certificate has been issued to them that they are covered for any loss. Finally, all additional insured endorsements are not the same. Each is issued for a specific purpose, and the preparer of the contract must be specific as to the form of additional insured required.
How do subcontractors and policy renewals play into certificates of insurance?
When you hire a subcontractor to do work for you, request that a certificate of insurance be provided prior to the start of work. It is very important that the contractual agreement contain all of the indemnity and insurance requirements that are required in your contract with the owner or general contractor.
For policy renewals, a system needs to be in place to follow up for renewal certificates. The certificates need to be reviewed for compliance with your contract.
How have states taken legislative and/or regulatory action to address issues pertaining to certificates of insurance?
Often, insurance agents are asked to amend the Acord certificate form. It is copyright infringement to change the wording on the form. The wording that is printed on the form cannot be amended. There is legislation in most states forbidding an insurance agent to amend coverage by issuing a certificate. The policy must be endorsed for coverage to apply.
No business owner wants to be held in breach of contract because of a problem with the certificate of insurance. It also can slow business down — a job may not start, cargo may not get off a truck or a building owner cannot go to settlement. Therefore, take the time to ensure that everything is in order and properly reviewed to keep your business moving.
Joyce Shefsky is a vice president, client services at ECBM. Reach her at (610) 664-8299, ext. 1205, or email@example.com.
Insights Risk Management is brought to you by ECBM Insurance Brokers and Consultants
In business, as in life, there’s a benefit to having guidance that’s tried and true. Most successful business owners can cite mentors who have directed their paths along the way. As companies grow, those informal relationships are usually replaced by formal boards of directors. A board of directors is a very useful method for allowing significant shareholders to feel they have a say in the strategic planning for the company.
It’s my opinion that all companies – regardless of size – need to have a board. In this two-part series, I will explore the benefits that a small company can gain from having a corporate board and how a small business owner can establish a board.
First, let’s examine the benefits:
1) A good board of directors will do what employees often are afraid to do: challenge the leader. Most employees don’t feel empowered to speak up when they think a strategy is misguided or out of sync with customers or a target market. Board directors should be willing to openly question ideas and the assumptions that guide strategic planning to help the president or CEO suss out their soundness.
2) A board can provide accountability – particularly in family-run businesses where it can be hard for an unbiased assessment of the business without familial issues clouding judgment.
3) Boards can help with recruiting, evaluating and selecting top job candidates, as well as setting compensation criteria that are fair and transparent. Since directors are removed from the daily running of the business, they can help with succession planning.
4) For companies considering a public offering, setting up a board early can help acclimate the owners to the enhance scrutiny that they will face once the company is publicly traded.
5) A board of directors is legally required for registered corporations.
Next column: How to create your own board.
Patricia Adams is the CEO of Zeitgeist Expressions and the author of “ABCs of Change: Three Building Blocks to Happy Relationships.” In 2011, she was named one of Ernst & Young LLP’s Entrepreneurial Winning Women, one of Enterprising Women Magazine’s Enterprising Women of the Year Award and the SBA’s Small Business Person of the Year for Region VI. Her company, Zeitgeist Wellness Group, offers a full-service Employee Assistance Program to businesses in the San Antonio region. For more information, visit www.zwgroup.net.