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Friday, 02 November 2012 14:29

A matter of perspective: Focus on what matters most

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Are we grateful for the things we have? Are we grateful that we live in a country where the government can’t seize our businesses, where there’s no threat of rebellion and where we can go home to the comforts of our modern homes?

Many people in the world don’t have any of those luxuries. Some can’t even look forward to a good meal or clean drinking water. Most of us here in the United States don’t have to worry about such problems because the people that came before us worked hard to create a nation that has an amazing standard of living. The generation before us rose from the troubles of the Great Depression, led the fight against Nazi aggression that killed millions and returned home to finish making America into a superpower, but do we ever pause to think about the contributions our mothers and fathers made to make things easier for us today? They lived in small houses, often sheltering multiple generations, and worked long hours to make a better life for their children and grandchildren and selflessly went off to war to protect our freedom.

Do we ever think about any of that? The answer for many is no. Gratitude is in danger of becoming a lost art as we focus on accumulating money and possessions, always looking to be better or richer than the next person.

How many times have you read about or talked to someone who had everything you could ever ask for — nice home, nice car and no money problems — lamenting the fact that he or she doesn’t have as much as or more than someone else? We sometimes catch ourselves comparing who has more instead of who has less.

As business leaders, we should have some sense of moral obligation to help those within our sphere of influence, whether it’s our peers, employees or the person who lives down the street. We should be doing our best to look out for those around us, but too often, our days are consumed with the details of business.

Our world may be built on information, but wisdom is lacking. Business has been boiled down to statistical analysis and quarterly earnings reports while people are just another line on the ledger. There is often little room for gratitude in corporate America, and that’s a shame.

When our focus is on accumulating things, we can never enjoy it, because we don’t know how. How can we enjoy something when we’ve already raced off to try to get more? Like a kid tearing through a pile of Christmas presents, we never really take the time to appreciate each gift.

In this season of giving thanks, we should take a moment to think about those who came before us and who helped us get to where we are. Let’s thank those around us for a job well done and consider reaching out to someone who could use a helping hand. But most importantly, let’s consider putting our lives in perspective by thinking about those who are less fortunate.

When we focus more on gratitude, we’ll make a difference that’s far more effective than any business plan. It will allow us to take the time to celebrate success and enjoy the fruits of our labor. Gratitude doesn’t require a giant donation or a huge event; sometimes the little things are more effective.

In the end, we’ll find that the only things truly worth accumulating are good will and happiness. It’s in our control to start helping everyone around us get their fair share, and that’s something all of us can be thankful for.

Fred Koury is president and CEO of Smart Business Network Inc. Reach him with your comments at (800) 988-4726 or

Hiring the right talent to manage and operate your business is one of the biggest challenges any executive faces. No matter how amazing your product or how visionary your plans, success won’t come easily without a workforce in place who can cultivate and enrich your company’s core values.

Figuring out how to attract and employ this talent can be tricky — candidates who look good on paper aren’t always the best fit in person.

Here’s how Petplan picks winning personalities who support and sustain our company’s culture.

Know thyself

When your company’s core values are clearly defined, hiring decisions become much easier. At Petplan, we have established ourselves not as an insurance company but as a pet health company that sells insurance. Putting pets first is the central idea from which our entire company culture has evolved. Thus, our staff absolutely must have a passion for pets.

Our goal to help pet parents afford the best care for their pets is something that resonates with all our employees personally, and this personal investment drives our customer service, helps determine our business partners and defines our marketing and communications strategies.

Understand your needs

To make the best hiring decisions, you need to know what you need. Because we are a business with a start-up culture, Petplan needs people who are excited about building solid, scalable infrastructure to accommodate explosive growth.

Because we are dedicated to advancing pet health, we need people who have the vision to identify key partnerships and who have an inherent passion for the product.

Above all, we need people who can think and communicate in the brand’s fun and friendly voice, whether connecting with our customers, our partners or each other.

Don’t be afraid to pass over talented people who may not be a great fit for your company’s culture. There’s more to a great team than talent. While skills can be taught, passion and personality tend to be part of the package or not.

Pass it on

Once you’ve determined your company’s modus operandi, you must effectively communicate it to your employees. For Petplan, culture is king. We strive to maintain the classic start-up culture — an environment in which everyone is a hands-on contributor and shares ideas. We use an open floor plan that promotes interaction throughout the staff, managers and executives alike.

We balance productivity and play. Our offices feature a plethora of pet-inspired décor, plus a treat table we keep filled with staff and visitor favorites. When one of our claims adjusters passes an exam, we order mini cupcakes for everyone.

When we debuted at No. 123 on Inc. magazine’s list of the fastest-growing privately held companies last year, we filled the office with balloons and had a party.

These are small perks, but they reinforce our belief that hard work can be punctuated by playful pick-me-ups now and then.

The rules of attraction

Find the sweet spot in your company’s culture for wooing the talent you want. For Petplan, one of the biggest perks we offer is that we allow pets in the workplace. Encouraging our employees to bring their pets to work helps foster a uniquely creative work environment and has given us a distinct advantage in attracting new talent.

So many prospective employees place a real premium on being able to bring their pets to work as it provides more quality time with their beloved companions and reduces expenses like dog walkers.

Most importantly, we have found that sharing our office with pets serves to reaffirm our commitment to pet health and well-being — and keeps our “pets first” philosophy at the heart of everything we do.

Natasha Ashton is the co-CEO and co-founder of Petplan pet insurance and its quarterly glossy pet health magazine, Fetch! — both headquartered in Philadelphia. Originally from the U.K., she holds an MBA from the University of Pennsylvania Wharton School of Business. She can be reached at

It was the first half of 2008. For 15 years, the company that became BioClinica Inc. had developed a strong presence as a medical image management business in the clinical research solutions space. Mark Weinstein, the company’s president and CEO since 1998, had been on board for most of that run.

“It’s been a good business, a dominant business, but in March 2008, we decided to really broaden the business and go into a new area for us, what we call e-clinical solutions,” Weinstein says. “It’s technology and solutions related to clinical research. We were stepping beyond our core business and entering a new space, but our strategic plans were intact.”

Everything was smooth sailing until the fourth quarter of that year, when the economy slammed into a wall, plunging into its worst recession since the Great Depression. Weinstein needed to keep BioClinica on course, continuing to grow its e-clinical solutions business, but he now had to do it in a climate of extreme volatility and adversity.

“When that happened, we had to do what everybody did, which was figure out how to keep the business going and stay profitable throughout the downturn,” he says. “That was a big challenge because we had just stepped beyond our core business.

“The good news is, we did fairly well, we maintained profitability and continued to grow the new business, but our revenue ramp wasn’t quite what we anticipated when we went into the space.”

But keeping the ship on course wasn’t as easy as maintaining a steady heading. Weinstein and his leadership put in months of work behind the scenes to ensure that BioClinica could continue to grow. The company generated $68 million in service revenue last year, up from $62 million in 2010.

Know your strengths

When the recession hit, Weinstein and his team had to do what a lot of company leaders were doing — assess the business and figure out which areas needed which resources in order to help minimize the effects of the downturn as much as possible.

Weinstein knew BioClinica’s best bet was the company’s primary competency — clinical research. He and his team quickly came to the conclusion that the company needed to focus on new ways to employ what it does best.

“We know clinical research very well, and we always approached it from the management of medical images as it relates to information using clinical research results,” Weinstein says. “So we wanted to stay within clinical research, but we needed bigger markets to go after.”

Within the broader category of clinical research, Weinstein decided to pour more resources into technology. With the recession driving business volume downward, e-clinical solutions became more than a new area for BioClinica to explore. It became essential to the company’s ability to weather the recession and emerge from it in a position to continue growing.

“We knew drug development was going to continue, but the challenge we had was knowing that pharmaceutical and biotech companies, as well as the world in general, became kind of like deer in headlights for a while,” Weinstein says.

“So the question becomes, what do you do with your business to try and maintain profitability? Something I have always stressed to my people is that when you hit a down market, the last thing you want to do is exit that down market in a weakened state.”

You can’t adjust the flow of resources in your business without creating a domino effect. Scaling back timetables on projects, reallocating dollars and reallocating manpower all take a cumulative toll on the organization. Your reasoning might be sound, but if you don’t keep your people in the loop, all they’re going to see is chaos and upheaval. Morale will suffer and, in turn, so will your culture.

Weinstein says a CEO’s obligation to his or her people in a time of upheaval boils down to one word: transparency.

“Transparency was a big thing for me because it wasn’t just my issue personally; it was a company issue and a market issue,” he says. “I didn’t see it as everybody’s issue to try and solve it, but I was very open with everyone.

“In some ways, it was actually better from a communication standpoint than some other market situations you might find because everybody in the world knew things were changing. The issue was that we had to do our fair share as individuals and a company to respond to that.”

Weinstein relied on the company’s organizational structure as a vehicle for communication. He focused on developing solutions with his department managers, who then rolled those solutions out to their areas of the company.

The goal was to maintain as much of a sense of normalcy as possible throughout the organization. BioClinica was responding to an economic crisis, but Weinstein didn’t want that feeling to permeate the company ranks. He wanted his people to remain focused on driving growth and finding solutions.

“We started with our executive team and just worked the process,” Weinstein says. “It was pretty similar to what we would be doing in a normal budgeting process. The issue was, the situation was somewhat fluid due to the down market, and nobody knew how long it might last.

“It was a little scary there for a while, because the economy worsened faster than anything I could remember in my career. But I wasn’t alone in thinking that, and everybody understood that they had a role to play in being a part of the solution.”

Face your customers

You can put the best crisis plan in place, plot out every detail and allocate resources perfectly, but it won’t make a bit of difference if sales dry up. If your customers aren’t buying what you’re selling, you’re still in a world of trouble.

Weinstein knew he couldn’t just focus inward on his own strategies and processes. As the economy worsened, he had to look outside the company and make sure his people were still connecting with the people and organizations that purchase from BioClinica. He couldn’t strip mine the customer-facing areas of the company if he expected it to emerge from the recession in a healthy state.

“We wanted to make sure that customers didn’t see us as retreating, so we deemed anything customer-facing to be highly critical with regard to resource allocation,” Weinstein says. “Things like development work might have changed, the rate of change of some of our products and services might not be as fast as we would have liked otherwise, because we had to gauge what the business could support and afford.

“But we didn’t want to do anything that would have affected aspects of the business that are client-facing.”

When the full force of the recession hit, Weinstein and his management team started to receive inquiries from customers as to the financial stability of the company. Weinstein looked up on it as an opportunity to reinforce confidence in BioClinica.

“We deal with all of the top pharma companies — the top 25 in the world plus 75 percent of the top 50,” Weinstein says. “In any given month, we’re sending invoices to about 170 pharma companies. So we did have more inquiries than usual relative to making sure that we did have financial stability, because drug development is going to be the key to their success. The last thing they needed was one of their vendors associated with their clinical research having financial difficulty.

“The way you quell those concerns is through simply being honest. You need to be open with people about where you stand.”

If you try to sugarcoat an issue or dance around a problem, it will come back to bite you. It’s only a matter of when.

“At the end of the day, we are all measured from the outside market from a financial perspective,” Weinstein says. “So for me to say something is happening that is not going to happen, I am delaying something that is going to be causing a much bigger problem if people have valued me based on expectations that are going to change. You really need to manage the expectations.”

However, managing customer expectations can be more easily said than done, especially if the matter involves an employee who wants to make a big impression.

Sometimes, younger employees who are eager to make their mark or simply haven’t mastered the art of managing expectations, will overpromise on a project, which could damage your firm’s reputation. Depending on the size of the account and the influence of the customer, such a misstep can potentially have long-reaching consequences.

“Sometimes, you can have a person who sees a risky situation with a project, but rather than be the bearer of bad news, they’ll tell the customer that they can get the project done without mentioning the risk level involved,” Weinstein says. “That type of situation can end one of two ways: Either you get it done and you’re a hero, or you don’t get it done and you have very poorly managed the customer’s expectations.

“So I always tell people to err a little bit on the side of losing the excitement of being the hero and more on the side of helping the customer to understand the risk you are undertaking. That way, nobody is disappointed.

“Clinical trials never happen as you plan them. As a vendor, one of our roles is to fix problems when they occur. To tell the clients that there will not be problems is not the right answer in most cases.”

Your customer-facing people have to know what constitutes a major risk. As BioClinica continued to grow in the e-research field during the recession, defining the boundaries of what made a given project a suitable risk came down to judgment calls at the executive level.

Ultimately, any decision on risk tolerance is an educated guess. You research the numbers, you measure the resources you can put into the project and you gauge the expectations of the customer. Beyond that, there are no guarantees. You can only trust the judgment of the people around you.

“We’ve amassed a tremendous amount of experience in our business, and anytime you’re able to rely on people with experience, it’s to your advantage,” Weinstein says. “I feel very comfortable that I can sit down with the right group of people, and I feel confident that we can figure out pretty quickly whether the project under consideration presents a risk that is appropriate for us.

“You can take the risk, but make sure everyone involved understands the level of the risk. The customer could always tell you that they don’t want to take that type of risk.”

If you have to walk away from a project because the risk is too big, it’s never an easy decision. But if it comes to that and you’ve built your corporate culture on a bedrock of integrity and honesty, the right answer should be obvious when you get on the phone to the customer.

“It has to be part of the fabric of who you are as a company,” Weinstein says. “If you’re talking about walking the walk like you talk the talk, I really do require that here. It can be difficult because those are never easy decisions. You want to minimize the number of decisions like that. But you simply have to stay true to the fabric of what you are as a company and who you are as a person.” <<

How to reach: BioClinica Inc., (267) 757-3000 or


The Weinstein file

Born: Washington, D.C. Raised in Richmond, Va.

Education: B.A. in economics, University of Virginia; MBA, College of William and Mary

First job: I filled foundations with dirt in a new housing development. I did it by hand, one shovel at a time, then tamped it down so the concrete foundations could be poured. I was 15 at the time, and that as much as anything convinced me that I needed to go to college.

What is the best business lesson you’ve learned?

As saying I’ve always enjoyed is, ‘Life is what happens when you’re busy making other plans.’ The path your business takes between here and the realization of your vision is not a straight line. There are a lot of curves and road switches. You have to constantly re-evaluate where you are headed. A good vision two years ago might not be a good vision now.

What traits or skills are essential for a business leader?

I am a big believer in having a strong ego rather than a big ego. A strong ego elicits feedback and makes people want to share things with you. A big ego just turns people away, which is never good. You need input from a lot of different people to run your business the right way.

What is your definition of success?

Seeing the people around me thrive personally and professionally. I am not responsible for the personal lives of the people who work here, but I can help foster a balance between their personal and professional lives. If you have a good personal life, it will help you have a better professional life.

Indemnity clauses are included in contracts to provide a means by which the contracting parties can shift the responsibility of risk.

“Indemnity clauses can expand, limit or even eliminate the obligations of one party to another with regard to property damage, personal injury and contractual obligations,” says Paula Devaney, Director, Claims Services, at ECBM. “Indemnity clauses are drafted in order to establish the terms and conditions upon which one party can shift risk associated with the performance of the contract.”

Smart Business spoke with Devaney about how to make indemnity clauses work for you, shifting risk away from your business.

What’s an example of how indemnity clauses work?

Here’s an example: Company A owns a building and retains Company B to complete parking lot repairs. As a result of the activities of Company B, a visitor to the building falls and sustains an injury. The visitor files a claim for damages against Company A. Pursuant to the indemnity clause in the contract, Company A demands that Company B respond to the claim since it arose out of their operations. If the contract did not include a properly drafted indemnity clause, Company A would have to bear the risk and costs of resolving the claim on their own behalf.

Do indemnification or insurance provisions apply first?

Indemnification provisions are evaluated first, as these clauses establish the parameters that will govern the risk being shifted. Insurance provisions are then evaluated to determine if the circumstances of the claim or demand will fit within the purview of the insurance coverage requested to be purchased. Not all of the risk that is shifted by an indemnity clause is or can be covered by insurance.

Both indemnity clauses and insurance are risk transfer vehicles. In a contractual relationship where an indemnity agreement exists, the parties will also include insurance language to support the indemnity. In the insurance world, the indemnity clause is commonly referred to as the ‘belt’ and the insurance provisions are referred to as the ‘suspenders.’

If the indemnity clause and insurance provisions are successfully drafted and implemented, the insurance purchased by the indemnitor will provide the indemnitee with a certain level of comfort that there is a means by which the indemnitor will be in a position to pay for the risk that has been shifted to them.

How does the language of the indemnity clause affect the end result? 

Language that must be thoroughly evaluated is anything in the clause that establishes very broad terms of the risk being transferred. Both parties who are depending on the viability of an indemnity clause should draft indemnity language that is specific to their relationship, complies with the jurisdiction in which the clause will be interpreted and clearly, or as best as possible, defines the proposed intent of both parties entering into the agreement. Effective communication is paramount to ensure that intent is clearly understood.

What must you include when creating a contract’s indemnity clause to provide the most protection for your company?

One way to establish a high level of clarity is to include or create definitions of key terms in the indemnity clause. Terms such as claim, damages and contractor/vendor conduct can be included in a definitions section of the contract so that there is little to question as to what type of act constitutes a breach, what constitutes a claim and what damages are subject to indemnification. Simplifying and defining the terms can allow a more clear and concise interpretation of the indemnity clause against the circumstances giving rise to the demand for indemnity.

The identification of the parties to be indemnified is also crucial. The party potentially granting indemnity will wish to limit the parties to be indemnified, whereas the party requesting indemnity will seek to expand or broaden the list of potential indemnitees.

The duty to defend and associated costs must be clearly established and can also include issues such as which party controls and/or must consent to defense, the degree to which one party must consent to settlement and the remedies available if there is a refusal to defend an indemnified claim.

Other factors to be addressed are:

  • Losses/damages or limitations on types of damages. Issues such as attorney’s fees must be included as a recoverable cost, while consequential damages should be contemplated along with fines and penalties.

  • The period of time in which an indemnity clause survives the contract.

  • Including and/or defining the type of event that can trigger the obligation to indemnify.

  • Insurance procurement. The indemnity clause in a contract should not rely on the viability of the entity granting the indemnity. If the indemnitor goes out of business, their insurance may still be in effect.

When your business is signing a contract that includes indemnity clauses, what should you watch out for?

It is crucial for both parties to read the contract, and specifically the indemnity provisions, carefully. Every indemnity clause is different. There is nothing standard, and many times nothing fair, about an indemnity clause. If you do not read the clause and carefully consider the implications, you can be accepting a tremendous amount of risk you never intended to undertake.

The indemnity clause should be drafted in a manner that carefully considers the intent of both parties. When negotiating indemnity provisions, you may win some battles and lose others. However, with effective communication between both parties and effective review of the contract by legal counsel and, just as importantly, your insurance broker, the intent of the contract will at least be understood. Therefore, you can enter the contractual relationship with an understanding of the risks and liabilities.

Paula Devaney is a Director, Claims Services, at ECBM. Reach her at (610) 668-7100, ext. 1216, or

Insights Risk Management is brought to you by ECBM Insurance Brokers and Consultants

The Internet is an integral part of doing business — from sending emails and hosting a website to setting up virtual private networks and interconnecting locations. Today, more than ever, organizations require reliable Internet connectivity with increasingly higher speeds to satisfy growing application requirements, while carefully managing IT costs.

“Internet usage continues to grow and evolve significantly from its simpler Web browsing and email origins,” says Mike Maloney, vice president of Comcast Business Services. “Organizations, large and small, now extensively rely on the Internet to increase productivity, provide business-to-business or business-to-consumer services, streamline their supply chain and outsource IT applications to reduce costs.”

With Internet bandwidth requirements continually increasing, Ethernet dedicated Internet access is becoming a cost-effective and more flexible option to connect to the Internet, Maloney says.

Smart Business spoke with Maloney about how Ethernet stacks up against T1 connections.

How has the adoption of new technology increased the need for better Internet connections? 

The potential for new technology to lower the cost of business operations is clear. For example, by moving applications to hosted or ‘cloud-based’ services, an organization can eliminate the capital expense of the application servers and operational expense of software licenses and support, while reducing the burden on their IT support staff. Spending on public IT cloud offerings is forecast to reach $55.5 billion in 2014, representing a 27.4 percent compound annual growth rate, according to a recent report from the International Data Corporation. This rapid growth rate is more than five times the projected growth rate for traditional IT products.

Meanwhile, utilizing this new technology will require a higher-speed Internet connection. An organization’s bandwidth requirements may increase due to:

  • An increasing number of visitors to your locally hosted public website for e-commerce transactions.

  • An increasing use of cloud-based services where you move applications from running locally to a remote data center or hosted server in the cloud.

The capital expenditure and recurring operating savings of cloud-based services typically provide a better return on investment than the additional Internet bandwidth costs. During times of accelerated growth, organizations can leverage the Internet to rapidly respond to increased productivity and supply chain, while carefully managing costs.

How have businesses been using T1-dedicated Internet access?

A popular way for organizations to connect to the Internet has been via a T1-based dedicated Internet access (DIA) service. T1 DIA services are typically offered over one or two T1 circuits so the bandwidth options are limited, inflexible and costly as an organization’s bandwidth and application requirements grow. To be competitive, you need to quickly and cost-effectively adapt your Internet access bandwidth, so T1 DIA services are challenged to meet these elastic bandwidth requirements.

With a single T1 circuit operating at 1.5 megabits per second (Mbps), you need to purchase upgraded service to get more bandwidth, which may require a new T1 router to support the bonding of the two T1 circuits. Typically, that will cost another setup charge, as well as a higher monthly recurring cost for the service. Additionally, there will be service disruption if you must replace the existing T1 equipment, and new equipment or circuits may delay the upgrade days or even weeks.

Many T1 DIA service providers cannot provide Internet access beyond two T1s. If your Internet access bandwidth needs increase beyond that, you will have to switch to a different technology with higher bandwidth choices.

Why is Ethernet-dedicated Internet access a better choice for businesses?

Ethernet DIA services are typically delivered over a single Ethernet fiber optic connection that can handle any amount of bandwidth between 1 Mbps and 10 gigabits per second (Gbps). Ethernet DIA service can be purchased in flexible bandwidth increments up to the Ethernet port speed, and the port speed depends upon your initial and anticipated bandwidth needs for the duration of the service agreement. A 10/100 Mbps Ethernet port speed is sufficient for most organizations. Unlike T1-based DIA services, Ethernet DIA services are not offered based on circuit speed.

Capital expenses are also low to non-existent with Ethernet DIA. If your building does not have a fiber optic connection, your Ethernet DIA provider will deliver a fiber optic connection, which has a one-time cost associated with that installation. Otherwise, if you can use an available Ethernet port on your router you are ready to go, as the Ethernet DIA service demarcation device is included in the setup cost. Ethernet DIA enables you to better manage your IT capital and operating expenditures during varying economic cycles. Cost savings can be achieved because you don’t have to switch Internet access technologies or providers when your organization’s bandwidth needs exceed 3 Mbps (two T1s).

Your Ethernet DIA service provider can remotely reconfigure the Ethernet service demarcation device to support the new bandwidth you require, and you can continue to use the service up until that upgraded amount. If the Ethernet service demarcation device needs to be restarted, you may only experience a minimal service disruption. This is in contrast to T1 DIA service, where new equipment and new, higher speed circuits may take days or even weeks to get implemented.

Organizations increasingly utilize the Internet as a critical business tool, and Ethernet-based DIA services provide many benefits over T1-based DIA services. The most obvious benefit is higher bandwidth. Ethernet DIA services also enable organizations to more quickly and cost-effectively add Internet access bandwidth to optimally manage their IT costs while they grow their business.

Mike Maloney is a vice president of Comcast Business Services. Reach him at

Insights Telecommunications is brought to you by Comcast Business Class

With year-end tax season in full swing, a cloud of uncertainty hovers over businesses. Forecasting what 2013 will bring in terms of tax rates and legislation is difficult because of the impending presidential election and the unknowns about whether the Bush-era tax cuts will be extended.

What will happen to tax rates in 2013? How could estate planning be affected? Is now the time for your business to buy equipment?

“This year, the traditional planning techniques of deferring income and accelerating deductions may not be appropriate, depending on what happens with tax rates,” says Michael R. Viens, director, Tax Strategies, at Kreischer Miller, Horsham, Pa.

Viens recommends businesses plan early but hold off on executing any specific plan until the post-election dust settles and Congress gives some indication of its direction concerning late 2012 or early 2013 tax legislation.

Smart Business spoke with Viens about how businesses can best prepare and position their organizations to be flexible in light of the uncertain political and economic climate.

How is this year different in terms of tax planning? 

A key concern is tax rates and whether they will increase in 2013. If nothing happens legislatively by year-end, tax rates are scheduled to increase, impacting a number of events. Traditional business tax strategy focuses on deferring income and accelerating deductions, keeping as much cash in the business as possible. But such a strategy, if employed this year, may create higher taxable income in 2013, with the potential for a higher tax bite that could more than offset 2012 tax savings. Once the election is over, we should have clearer indications as to the likely tax regime in 2013 and beyond and will be in a better position to make decisions regarding implementation of specific tax planning initiatives.

Start planning now. Work through the what-ifs with your advisers, but wait before pulling the trigger until after the election.

Is now a good time to purchase equipment?

The purchase of appropriate qualifying equipment is a common year-end activity for businesses that wish to take advantage of the value of  bonus-depreciation opportunities that allow an immediate 50 percent write-off, and a Section 179 expense deduction that allows deduction of the full amount of the purchase price of the equipment, up to $139,000, in the year in which it was purchased and placed in service. Bonus-depreciation provisions expire Dec. 31, 2012, and the Section 179 deduction is scheduled to revert to $25,000 for tax years beginning in 2013, unless extended.

With equipment purchases, economics should drive the decision, with tax impact being secondary. If the equipment is important and acquiring it today means the business will be in a better position than it would be buying it in January, purchasing now likely should win the day. But all things being equal, a purchase in December versus January may be worth considering once it is understood what tax deductions and rates will apply in 2013.

How might an equipment purchase in 2012 be more beneficial than in 2013 if the current tax structure is not continued? 

Say a business purchases qualifying equipment for $1 million and places it in service in December 2012. It immediately gets a $500,000 tax deduction in 2012 per the 50 percent bonus depreciation rule and may also receive normal first-year depreciation for another $100,000. That equals a $600,000 deduction in 2012. And with a 35 percent tax rate, the tax savings is $210,000, resulting in a net short-term cash outlay for the equipment at $790,000.

If this purchase is deferred until January 2013 with no bonus depreciation and a new 40 percent tax rate, the business may save in the short term only $80,000 in cash rather than $210,000. However, due to subsequent depreciation, the business would realize a total of $240,000 in tax savings on the same $600,000  deduction that would be otherwise accelerated into 2012.

The business should weigh the longer-term $30,000 tax savings from deferring the equipment purchase into 2013 against an earlier short-term tax savings. The choice involves tradeoffs — short-term cash flow versus the present value of longer-term higher tax savings. Without knowing what 2013 will bring, planning for both scenarios is key.

How should businesses proceed with succession planning given tax law uncertainty? 

Estate taxes are of importance to business owners in transferring ownership to the next generation, and there is uncertainty regarding those provisions. There are currently opportunities to transfer significant family wealth without incurring gift tax due to historically high lifetime gift exemption levels. But this could go away if the estate/gift tax structure is not extended. Businesses transferring ownership should discuss opportunities now with an attorney and their tax adviser.

What traditional year-end tax planning techniques still apply, regardless of what the tax law brings? 

Address safe harbors to avoid underpayment penalties. Because many businesses are seeing 2012 earnings that are more robust than in 2011, a prior year-based 100 or 110 percent (applicable for higher income taxpayers) safe harbor comprised of withholding and/or estimated tax payments may be an easy answer. A business with a tax liability of $100,000 in 2011 could use a $110,000 safe harbor and make up a shortfall when tax returns are due next April.

What planning strategy can business owners adopt to prepare for unknown 2013 outcomes?

Develop a Plan A and Plan B, working out how your business will react if tax law continues as is, and what decisions will be implemented if the current tax opportunities and tax rates change. Depending on the position of the business and owner circumstances, this year may require a more robust planning process than in the past, which is a good reason to enlist an experienced accountant and begin the tax-planning dialogue early.

Michael R. Viens is director, Tax Strategies, at Kreischer Miller, Horsham, Pa. Reach him at (215) 441-4600 or

Insights Accounting & Consulting is brought to you by Kreischer Miller

Thursday, 01 November 2012 08:17

Capital means JOBS — so things are about to change

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The way business owners can raise private capital is undergoing an unprecedented expansion.

Pursuant to the Jumpstart Our Business Startups (JOBS) act, the Securities and Exchange Commission (SEC) has proposed new rules that would permit general solicitation and general advertising for certain private placements.

Comments were due by Oct. 5, with the final rules due out shortly.

“It should certainly spur investment,” says Peter J. Smith, a member at Semanoff Ormsby Greenberg & Torchia, LLC.

“The average small business owner might have a $10 million per year company and want to raise a million dollars for an acquisition, a new product line, division or plant, or want to hire or need to grow,” he says. “They may not know the kind of people who can write those checks, and if they don’t, they can now advertise for


Smart Business spoke with Smith about how private placements work and what the future holds.

What is a private placement? 

Under the Securities Act of 1933, the sale of securities must be registered or meet a ‘safe harbor’ exemption.

These exemptions are primarily contained in Rules 504, 505 and 506, although Rules 504 and 505 are not often used. Rule 506 provides that a company can sell an unlimited dollar amount of securities to an unlimited number of ‘accredited’ investors, and up to 35 nonaccredited investors.

An individual accredited investor is someone who meets one of the qualification criteria, including:

  • Net assets in excess of $1 million, excluding private residence.

  • An individual annual income of $200,000 per year or a joint income of $300,000 per year for the last two years and anticipate reaching that level again in the current year.

Entities have to meet different criteria to be considered accredited. Under current rules, companies can take up to 35 purchasers who do not meet the accredited investor test. If you are issuing securities to nonaccredited investors, however, you will want to provide adequate disclosures.

Additionally, there are prohibitions on general advertising and solicitation. This significantly restricts who you can solicit.

Why might a business owner utilize a private placement to raise capital?

Growing companies in need of capital and not in a position to borrow could benefit from a private placement. In this lending environment, banks are extremely conservative in their underwriting criteria. So, if a company is growing quickly, capital is generally not available to it through traditional means if it doesn’t have the collateral.

Smaller, privately held companies can’t afford a public offering’s cumbersome registration and reporting requirements. By doing a private placement, the business can raise additional capital through the issuance of equity. Owners give up a piece of their company, but theoretically, are growing the company, so the owner has a smaller piece of a larger pie.

By retaining an experienced attorney, you can structure a private placement in a way that meets your long-term business goals and is attractive to potential investors.

The attorney can assist the business with preparing a private placement memorandum, describing who they are, what they do, why they’re raising capital, the uses of the funds, and includes their business plan, projections, financial statements and risk factors.

This information becomes part of the solicitation materials used to attract potential investors and also protects the company from liability.

What are the new rules for private placements?

The new SEC proposed rules will permit the use of general solicitation and general advertising to offer and sell securities so long as you meet specific criteria, including:

  • The securities can only be sold to accredited investors.

  • The issuer of the securities has an obligation to take reasonable steps to verify that an investor is in fact accredited. For example, if a purchaser claims his net worth is in excess of $1 million, the issuer should ask for a personal financial statement and supporting documentation to demonstrate that net worth.

The intent is to open up additional avenues of capital for small business in order to stimulate the economy and job growth.

How much will the solicitation rule change private placements? 

Most small businesses don’t have a group of high-net-worth individuals waiting to invest.  It’s hard to go to your friends and family and ask for a million dollars. There are a lot of companies with good stories to tell and solid financial statements, but without the right kind of investor contacts. So, if they could go to an attorney or investment banker, put together a package, advertise and openly solicit accredited individuals and companies, it’s going to significantly increase the flow of funds into small businesses.

What are the risks regarding general solicitation and advertisement?

It does create an environment where there is more opportunity for fraud and misrepresentation. Investors will have to be careful and do their due diligence to assure they are making good investments in good companies. The documentation and disclosures will become that much more important. If we weren’t coming off a very difficult recession and sluggish economy, it’s unlikely this rule would have been implemented. For now, it is a way to get capital to small businesses to spur growth. Banks can say they have money to lend, but they’re not lending it. There are many companies that are struggling to get capital; they’ve had lines of credit reduced and borrowing bases limited. It’s very difficult for a growing company to get enough capital to continue on its growth cycle. This new rule should help.

Peter J. Smith  is a member at Semanoff Ormsby Greenberg & Torchia, LLC.  Reach him at (215) 887-4132 or

Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC

On November 28, the 2012 Midwest Social Media Summit will be held at Executive Caterers at Landerhaven in Cleveland, OH. This one-day-conference will offer tips and insights from social media experts and top business leaders who will help you reconsider your strategy or validate your approach.

For more information and to register, click here.

And as a special bonus to our Smart Business readers, we're giving away five FREE tickets to the event! To enter the contest, simply do one of two things:

  • Visit the Smart Business Twitter page and follow us. Then just send out a tweet that says, "I don't want to be anti-social. I want to attend the 2012 @Smart_Business Midwest Social Media Summit!"
  • Visit the Smart Business Facebook page and like us. Then post to the page, "I don't want to be anti-social. I want to attend the 2012 Smart Business Midwest Social Media Summit!"

We'll draw the winners on Monday, Nov. 19.

For additional information, please contact Anne Hydock at or (440) 250-7041.

A good board of directors can be a great support for a top executive regardless of company size. The most common type of board offers advice; however, other boards act as fiduciaries, which have legal liability for the company’s practices – and thus are much more actively involved in overseeing the company. In either scenario, before establishing a board of directors, a small business owner needs to be clear about why he or she wants a board and what the owner is prepared to do to get maximum value from a board.

These steps can help with developing your board of directors:

1) Get prepared. Write down what you want them do, how much time they will need to commit monthly, how long you want them to serve, where you and the company need the most advice, and what are you willing to provide as compensation to board members – if anything. Many nonprofit boards don’t offer payment beyond lunch, but for-profit entities typically provide a quarterly stipend or payment.

2) Choose broadly. Many business owners draft friends and industry colleagues to sit on their boards initially. However avoid picking carbon-copies of yourself. Look for board members with diverse backgrounds and perspectives. It is useful to have board members from a wide range of fields, including legal, finance, accounting and marketing. Organizations such as the U.S. Small Business Administration’s SCORE program of retired business executives and The Alternative Board can connect groups to potential board members.

3) Orient the board. While board members may be familiar with your organization or products, they may have only a broad understanding of your operations. Therefore, it may be useful to provide orientation for incoming board members to cover organizational structure, functional duties for each division and division head, a brief description of each product/program/service that includes its target market, as well as pie charts that display major revenue streams and expenses.

4) Share authority. Many entrepreneurs conceive and build a company according to their liking and their understanding of the customer. Owners and managers should run the day-to-day operations in alignment with the board policies. A good board will encourage the development of processes for rationally researching, analyzing and assessing all aspects of the company. Moreover, few board members want to give up their time to meet to essentially rubber-stamp every executive decision.

5) Reassess your board periodically. What you need today to help your business flourish may not be what you’ll need in three or five years. As you periodically conduct mid-term strategic planning, you should review the skills and resources presented by each board director in light of where you want to take the company. Don’t be afraid to disband and redesign your 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