On the heels of the Affordable Care Act and health care reform, business owners are going to deal with the shakeout of more costs or potential fines, exchanges and other uncertainties. All the while, the sleeping giant of the commercial Property & Casualty (P&C) industry is awakening with wide speculation of a potential hardening market in workers’ compensation and property casualty. Frankly, it seems to have arrived here in California and other states, as workers’ compensation renewals are causing sheer exasperation.
Gloria Lam of Risk Placement Services lets us know that the market is gyrating; low-price carriers have started high and the clients are demanding quote revisions up to three times for price reductions. It is our job as brokers to persist on behalf of clients by presenting high-deductible plans and other options. Professional Employer Organizations (PEOs) and captives may not be the best shelter, and the repercussions can be costly and can be felt for years to come. It feels as though CEOs are in the eye of the storm that is circling around them, taking bits and pieces, as CFOs are boarding up the windows trying to hold on to what they have.
Ken A. Crerar, president and CEO of the Council of Insurance Agents and Brokers (CIAB), said the P&C market has officially achieved hard-market status. With price increases in the last two quarters and tightening in underwriting, the market has made a hard turn. He goes on to say, “It is hard to predict the length and severity, but the market has turned.”
Mark Lyons, CEO of Arch World Wide Insurance Group said, “Overcapitalization is hiding losses on business. We have had $12 billion in reserves released in the 2011 calendar year alone. … It has been three loss-ratio points of reserve releases over the past three to four years on average. … This sheltering losses on current-year business and masking how unprofitable current business is because of releases in this year for accidents which occurred prior.” The soft-market pricing is catching up and the longer-tails in commercial lines are causing depleting cushions in reserves. Acts of God and other disasters have an aftermath effect and there has been frequency internationally.
Market Scout says workers’ compensation and commercial property rates both rose 4 percent in April, which was the highest of the product lines. Richard Kerr, CEO of Market Scout, notices admitted and nonadmitted insurers are showing similar pricing models. This is against historical approaches to underwriting which, in the past, showed considerable differences. These similar pricing strategies could lead to more business for the nonadmitted insurers. The admitted insurers may begin to restrict their risk appetite and begin to decline tougher risks.
The last 10 quarters have generated negative cash reserves, which are beginning to impact companies. Business leaders are looking for leadership that will re-energize local economies and lower the cost of doing business. Brian Allen in National Underwriter goes on to state how these business leaders are demanding improvements in state's business climates. “These changes include reforms to workers’ comp laws that deal with how medical treatment and benefits are delivered to injured workers and the costs that are ultimately passed on to local businesses.”
California is beginning to see double-digit increases in workers’ compensation and some businesses are responding by closing their doors in the state. U.S. Legislators, State Department of Industrial Relations and Governors are demanding more than piecemeal reform and taking a hard look at the delivery of care, prescriptions and costs. The broker’s role is to go to the insured and make sure they know what is happening. The only safety net is to be prepared for the storm as it continues to pass through.
Insights Business Insurance is brought to you by Montage Insurance Solutions.
Mike Robb is the passionate executive director of three nonprofit agencies: Center for Community Resources, Alliance for Nonprofit Resources and the Nonprofit Development Corp., all located in Butler, Pa. Robb works to unite these three agencies under the goal to provide support to both the community and fellow nonprofit agencies in order to build a comprehensive support network in the Western Pennsylvania region.
CCR, the original organization, is a human service agency that connects community members in need with the appropriate network of supports and services. Robb wanted to capitalize on CCR’s abilities and evolve its services to include those of ANR and NDC, both of which provide support services to other community nonprofit agencies. ANR offers backend support and services including grant writing, fiscal support, and marketing and design. NDC, formed in 2010, focuses on property management and offers support through technical assistance, training and capacity-building opportunities.
Together, the three nonprofits showcase Robb’s diverse leadership and analytical skill to utilize human and financial resources. After a total of $825,000 in funding cuts this year, Robb has found new ways to maintain staff members and continue each agency’s impressive growth. He constantly pursues new programs and services to fill gaps in the community and also seeks out inefficient programs in hopes to partner with the nonprofit and offer resources to improve operating efficiency.
Currently, Robb oversees 59 programs available to more than 180,000 residents, including transportation, housing and crisis management programs. CCR, ANR and NDC are all embarking on new projects and partnerships to better the nonprofit community, and Robb hopes this will continue and develop a regional Western Pennsylvania presence.
Robb hopes to impact 25,000 people per year and achieve agencywide compliance and accreditation in the near future. Recently, Robb was named the Ernst & Young Entrepreneur of the Year Western Pennsylvania and West Virginia award winner.
How to Reach: Center for Community Resources, (724) 431-0095 or www.ccrinfo.org
On Oct. 30-31, more than 700 advanced energy industry leaders will convene at the Greater Columbus Convention Center for Ohio’s first statewide Advanced Energy B2B Conference & Expo. The event, produced by NorTech and presented by Advanced Energy Economy Ohio, is the largest conference and exhibition focused on the companies, technologies and researchers driving progress in Ohio’s advanced energy industry.
The business-to-business expo is also geared toward companies interested in entering the industry, supply chain manufacturers with an interest in advanced energy opportunities, national collaborators and value chain partners interested in doing business in Ohio or with Ohio partners.
“We are at a critical point in the growth and evolution of Ohio’s advanced energy economy,” says Dave Karpinski, vice president of NorTech. “The Advanced Energy B2B Conference & Expo provides a critical platform to share ideas for developing new, innovative advanced energy technologies, network with leading industry decision-makers and capitalize on common synergies for future business opportunities.”
Advanced Energy B2B 2012 builds on the success of Advanced Energy B2B 2011, which was geographically focused in Northeast Ohio and attracted more than 450 attendees. As a result, the footprint for Advanced Energy B2B 2012 has been expanded to bring together advanced energy stakeholders from across Ohio. Developing connections that will accelerate the growth of the state’s advanced energy industry is a key priority of the event.
“It is important advanced energy companies, researchers and investors convene to discuss opportunities and challenges in the industry, as well as solutions to foster innovation and economic growth,” said Michelle Murcia, executive director of Advanced Energy Economy Ohio. “We have assembled industry-leading experts from across Ohio and the nation to share their insight and knowledge with conference attendees as they formulate their own business strategies for the advanced energy market.”
The program, which includes a slate of state, national advanced energy experts and thought leaders, will highlight Ohio’s strengths in several major sectors of advanced energy as well as policy, business and regulatory issues that could impact the industry in Ohio. Compelling examples of success stories and best practices in several sectors or projects will also be featured.
Ohio’s shale play will be featured as part of the B2B program. Utica Shale in Ohio is believed to hold a significant amount of “wet gas,” which contains natural gas liquids that are used by makers of plastics and chemicals. Experts will explore downstream opportunities for the polymer and chemical industries as a result of the shale gas boom, the economic effects of shale gas and if it will be revolutionary or evolutionary in nature.
Energy efficiency is also another important topic that will be covered. Given Ohio’s strengths in manufacturing, the energy-efficiency industry could be a significant economic opportunity for the state. Up until now, there has been very little focus on how Ohio manufacturers will play in the energy efficiency industry and the impact it can have on the economy. Advanced Energy Economy Ohio (AEE Ohio) will share the results of a statewide energy-efficiency road map that will highlight the energy-efficiency products and services being provided by Ohio manufacturers, the specific players and areas of critical mass they represent, and priorities for the state and its regions to target for growth.
Energy policy experts will preview what is on the horizon for innovative state policy approaches, the short- and long-term scenario for federal initiatives and opportunities for the Buckeye State. Attendees will gain an understanding of the policies needed to continue to build Ohio’s advanced energy industry.
Companies that have deployed some of the most significant advanced energy projects in Ohio will share their experiences with getting advanced energy projects launched, as well the challenges, successes and the outlook for initiating similar projects in Ohio.
The conference program will be complemented with a robust exposition hall, showcasing innovative companies, researchers and technologies in Ohio. More than 120 companies and organizations are expected to exhibit. A new addition to this year’s event is the Technology Showcase, which will feature short presentations by companies and researchers who are seeking collaborators, project/demonstration resources and partnerships for funding.
An exclusive online social networking tool, called “B2B Connections,” will be used to facilitate networking among conference participants. This online tool provides attendees, exhibitors, sponsors and speakers the opportunity to connect based on matching interests, enabling them to communicate and schedule one-on-one business meetings with targeted prospective individuals and companies. Attendees are encouraged to register in advance at www.advancedenergyexpo.com.
This is Part 1 of two articles addressing the trials and tribulations of a company’s growth and development. First, let us set the scene: A company is on the path to success … great growth … exciting leadership … but has very little management.
This start-up, entrepreneurial company is driven by personality, and not just one, but a combination of personalities that create a unique cultural fingerprint of the company. It is not a formulaic approach; instead, it develops over time. This merging of personalities is an exciting time, driven by a common purpose and the excitement of building something unique. Things are flowing smoothly, and everyone begins to settle into a comfortable rhythm, says William F. Hutter, president and CEO of Sequent.
“This rhythm of early stage companies is a lot like that favorite recipe — the unique combination of foods and spices that make it smell and taste perfect,” says Hutter. “Remember visiting your grandparents’ house after you have been away for a long time? That smell of Grandma’s favorite recipes is deeply imbedded in your memory. Just one hint of that smell takes you right back to the comfort of Grandma’s kitchen. This same thing occurs in an organization during the early stage.”
Smart Business spoke with Hutter about the early stage of a company’s development and the role of the gun slinger.
How does the combination of personalities impact an organization?
The combination of personalities creates a feeling of comfort for those who helped create the collective personality. The founder/entrepreneur who has always run with his or her hair on fire is the head cheerleader. Everyone becomes comfortable, and the company’s cultural fingerprint becomes more established.
In the early stage, leadership is focused on sales, service and growth. The basic needs of the business — cash flow, growth, scale and bench strength — require that these factors repeat for continued growth. The leadership operates intuitively and influences the organization every day with necessary circumstantial decision-making. They are focused on a single objective — growth. This is the way the company operates and it is an exciting time.
What is the role of the gun slinger in this environment?
In the early stages, the importance of the gun slinger role is staggeringly important, because the gun slinger drives growth. We all know a gun slinger or two. They are in every organization. They get things done. It may be the founder/entrepreneur, or someone who has the courage to take on a tough project. They take risks and blaze the trail. The gun slingers in business are a lot like the gun slingers in old westerns. They are hired to do a tough job. They may move from town to town to ‘fix’ a problem, challenge the status quo or lead a group through troubled times.
In a growing business, the modern-day gun slinger is instrumental in driving the growth and the vision and is a constant reminder of the action and effort that are a necessary complement to the rest of the staff. The role of a gun slinger within a company requires creativity, quick thinking, calculated risk taking, gauging of skills, analysis of the objective and a superior level of individual talent. The role also allows for longevity of service and a willingness to accept individual accountability. Modern-day gun slingers must be self-motivated, willing to invest unrelenting effort with a purity of focus and have the ability to execute without regret. What organization wouldn’t want an employee or two with the skills of a gun slinger?
When does the gun slinger come under fire?
As the company grows, both internally and externally, the original entrepreneurial spirit and attitude begin to wane, and the gun slinger comes under fire. Early stage success brings with it the realization that this new company may very well have a long life. Therefore, a transition that ‘feels’ necessary begins to manifest.
Logic sets in. The organization has grown, and the early stage leadership realizes that planning for the next stage is imminent. Financial reporting is hazy, and people begin to point fingers rather than taking responsibility or working together to analyze procedures and methods. So a decision is made to look at what has been an ‘intuitive’ formula.
Time is spent documenting processes and systems to improve efficiency and move from an intuitive formula to one that is more prescriptive. The company also starts to see the risk of having leadership in such a crucial role. As a result, questions emerge — questions that involve re-evaluating what led the company to where it is today. Questions include:
- What do we do if something happens to the leader?
- The company is now a significant asset to its investors. How will the assets be protected?
- How do we document knowledge? How do we establish leadership as a mentor for sharing their unique knowledge?
- Can we decentralize to improve integration of departments?
- Do we need more management oversight?
All of these questions are legitimate, but we sometimes fail to recognize the consequence of seeking answers to these questions.
What happens when the gun slinger is no longer welcome?
In evaluating the factors that led to the early stage success, what had been the company’s strength is now examined as the company’s weakness. Often, when objectives have changed, the esteem once commanded by the leadership is questioned. They are no longer viewed as the strong gun slinger. Just as in old westerns, modern-day gun slingers, while welcomed in times of need, find their welcome has run out once their job is completed.
Next month, watch for Part 2 of the story, “Death of the Gun Slinger.” Learn how the changes fostered by the re-evaluation questions produce separate and distinct outcomes, which ultimately lead to the death of the gun slinger.
William F. Hutter is president and CEO of Sequent. For more information, visit www.sequent.biz. Reach Hutter at (888) 456-3627 or firstname.lastname@example.org.
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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
Goodwill of North Georgia isn’t your average nonprofit organization.
It is older than most corporations in the North Georgia area and among the fastest-growing Goodwill organizations in the country.
Between 2000 and 2012, the organization grew from 558 employees serving 491,000 donors at 25 locations to 2,425 employees serving more than 2 million donors at 124 locations. Goodwill helped find employment opportunities for 844 people in 2000 to more than 10,000 in 2012. And its revenue increased from $18 million to $113 million in that same time period, a 527 percent increase in a little more than a decade.
To better understand the organization that has been serving the community for so long, Smart Business partnered with Goodwill of North Georgia to learn about and evaluate its services and business model.
A strategic approach
Goodwill of North Georgia's mission is to put people to work, and this mission is interwoven into everything it does. The framework begins with a strategic planning process that outlines its goals for the following five years. It’s this planning process that predicts its growth, determines its efficiencies, defines its processes and provides the proper services to partner with employers to provide the job opportunities to those it serves.
Goodwill of North Georgia is the first donated-goods business in the world to hold the International Organization for Standardization 9001, 14001 and 18001 registrations. ISO 9001 is a standard that provides a set of requirements for quality management systems. ISO 14001 is an environmental management system that helps Goodwill of North Georgia reduce its impact on the environment. And ISO 18001 specifies requirements for implementing an occupational health and safety management system. These registrations confirm the high quality and dedication of the organization.
All Goodwills throughout the world are members of Goodwill Industries International Inc., which comprises 165 Goodwill organizations in North America and 14 Goodwill affiliate organizations around the world. Individual Goodwills are given the freedom to design the services and programs to meet the unique needs of their local communities.
Goodwill of North Georgia has chosen to focus on driving revenue through its donation centers and stores so it can put more people to work through job training, job placement and job creation. Among all Goodwills, Goodwill of North Georgia ranks fifth in total revenue, fourth in donated goods retail revenue and fifth in the number of people it has helped find jobs, illustrating this focus has been successful.
In its donor services segment, the organization collects donated clothing and household items and sells them in its retail stores. Goodwill of North Georgia operates 41 stores and more than 60 donation centers. In fiscal year 2012, it processed 1.7 million donations and served more than 4.8 million customers while continuing to grow by adding 14 new locations and 156 new positions.
The facilities services segment of the organization cleans about 5 million square feet of space each day in the North Georgia area and generates more than $15 million in revenue a year. About 80 percent of employees in this segment have disabilities, and Goodwill gives these individuals an opportunity to obtain employment. This business provides top-notch facility management services to federal, state and local governments and the commercial real estate market and has been doing so for more than 30 years.
Goodwill of North Georgia’s career services segment serves not only individuals looking for work but also employers looking for talent. It helped put more than 10,000 people to work at an average wage of $9.86 per hour in fiscal 2012. Proving its dedication to its mission of putting people to work, the organization steadily increases the number of people it puts to work annually and is on track to put another 12,000 people to work by 2014.
Like any shrewd business, Goodwill operates its programs and services with an outcome in mind. The important outcome is how many people are now employed in the community; it does it by tailoring its services to meet the needs of employers within the community.
Goodwill of North Georgia is committed to working with businesses of all types and sizes on a variety of projects. The organization is the go-to employee source for many businesses, and because of its stellar reputation and success in the community, it receives word of many job openings before they are posted publicly.
Goodwill of North Georgia has become known for the shared value it provides for both the community and businesses. These businesses receive workers who are fully trained and ready to work, and the workers receive a job that enables them to provide for their families and the greater community.
Besides hiring Goodwill of North Georgia’s program participants, companies throughout the area provide on-the-job training or utilize the organization’s training and employment resources. And Goodwill of North Georgia is open to other business partnerships that promote its goal of developing and strengthening its community.
Building cash reserves
Goodwill of North Georgia runs its business with a focus on building cash reserves of at least 30 percent of its annual revenue.
This strategy enables the organization to adroitly plan for anything that would be disruptive to the business. It has also made Goodwill of North Georgia one of the few nonprofits that was able to grow and expand during the recession.
Its business model also allows Goodwill of North Georgia to continue growing — as people outgrow the use of their items, they donate them. And at the same time, they need items, so they visit the organization’s stores to purchase them.
One of the misconceptions of nonprofits is they are not focused on operating cost-effectively and efficiently. This could not be further from the truth with Goodwill of North Georgia. The organization is focused on generating revenue and using it in a way that makes it a good steward of generous donations. It constantly looks for ways to reduce costs and live up to the highest standards of quality.
Maximizing efficiency through decentralization
Goodwill of North Georgia is one of the few Goodwill organizations in the country that is decentralized. The organization analyzed its internal processes to find ways to be even more efficient. Now it takes in donations at all of its individual locations and processes all donations to sell within 24 hours.
The organization greatly attributes its growth to this keen business strategy. It allows it to be more efficient because it is processing donations and getting them out for sale more quickly. It also saves on the costs of transporting the goods from various stores to a separate location and back again and on staffing for a separate location.
This process is more efficient and environmentally friendly. Shoppers at Goodwill of North Georgia’s stores are essentially buying their neighbors’ clothes, and the money and goods stay in the community.
Goodwill of North Georgia applies the decentralization philosophy to its career centers, as well. Instead of one central career center, Goodwill of North Georgia has many centers spread across its territory, making it more convenient for those who use the services and therefore enabling it to put more people to work.
Business processes drive results
Goodwills around the world are known for their donation centers and retail stores. However, not everyone knows the power of those donations and what goes on behind the scenes.
Goodwill’s stores are stocked with the items people donate. The proceeds from these sales support the operation of the organization’s career centers and other programs, which fulfills its mission of putting people to work.
Donations add up. For every nine shirts or blouses donated, Goodwill is able to provide one hour of resume preparation. For every chair donated, Goodwill is able to provide 12 minutes of career counseling. Donations have a huge impact on the organization and the communities Goodwill serves.
Because of this, Goodwill of North Georgia continually evaluates its stores to ensure they are operating as efficiently and effectively as possible. As times change, it quickly adapts and responds to ensure it is still meeting the needs of its community. The organization takes good business practices that work well in its best-performing stores and implements them in its other stores. This standardizes the stores so they all have the same processes and makes it easier for both employees, who can easily relocate from one store to another, and shoppers, who can visit different locations and expect the same great quality and service.
Goodwill of North Georgia makes donating easy and convenient in other ways, as well. It has an area of its website (www.goodwillng.org) where individuals, businesses or organizations can choose to donate money. If the donor desires, these contributions can go to a specific program. If the donor does not specify a use for the money, the board of directors selects a program.
And donations don’t have to be tangible — Goodwill of North Georgia also has volunteers who help the organization as placement call specialists, computer support assistants, class instructors, job fair support staff and more.
What happens to donated goods?
Goodwill of North Georgia accepts a wide variety of goods, including:
- Pots and pans
- Video games and systems
Goodwill of North Georgia is grateful for all of its donations and does not waste them. Items that aren’t up to the organization’s quality standards or cannot be sold within three weeks are offered for sale to the secondary/salvage market.
Great business practices equal great opportunities
Goodwill of North Georgia provides job training opportunities for a wide demographic across 45 counties, including youth, veterans, people with disabilities and people with limited education, although its career centers are open to anyone.
Goodwill of North Georgia has eight career centers that are free and open to the public. The centers offer weekly listings of local job opportunities often not found online or in the newspaper, computers with Internet access and resume writing software, phones and fax machines to arrange appointments and communicate with employers, a resource library with materials to help job seekers prepare for and secure employment and other resources such as coaching and interview tips. These services are critical to the community as many job seekers need the extra help in securing a job.
Goodwill of North Georgia also offers training programs at these centers, including programs for single mothers, noncustodial parents and other niche groups, and also offers certification programs, such as programs for forklift operators and apartment maintenance technicians. Workers who have attended these training programs have impressed many employers with their knowledge, perseverance and professionalism.
Talented, passionate staff and volunteers who provide guidance, coaching and strategies on job hunting operate these centers.
These services are particularly important because of the current economic climate. Many workers, especially skilled and semiskilled workers who have been affected by the loss of jobs or reduced hours, need the career assistance Goodwill of North Georgia provides.
In response, Goodwill of North Georgia ramped up its training offerings, working through weekends and holidays to solidify its mission of putting people to work.
Focus on the future
Goodwill of North Georgia ensures its employees are cognizant of its mission — putting people to work. The mission is posted and visible in its stores and career centers and is communicated during meetings and visits by executives. This communication ensures employees feel connected to the organization and are reminded of the importance of their work.
The organization also engages its employees in its strategic planning process. Goodwill of North Georgia has a volunteer board of directors, executive staff and more than 100 other managers engaged in some level of strategic planning.
Also, when a new store opens, Goodwill of North Georgia President Ray Bishop personally meets with its employees to discuss the organization’s planning process and why the stores exist. Employees are encouraged to read and understand the 5-year Strategic Plan and then ask questions.
This method of engagement is a main reason the organization has been so successful. A thoroughly followed, reviewed and communicated plan is critical to an organization’s success, and Goodwill of North Georgia’s method of creating and utilizing its plan is on par with some of the top businesses in the world.
Goodwill of North Georgia is effectively and efficiently run and well positioned for the years ahead. The community-based organization owes its success to a dedicated strategic planning process and commitment to excellence and execution at all levels of the organization.
Its current plan calls for it to double its size and revenue from 2010 to 2014, and it is on target to do so. The organization plans to open five new stores a year and each new store will employ about 40 people. It also plans to add one career center per year. Each career center increases the number of people the organization serves by an average of 3,000 and the individuals it puts to work by an average of 650.
The bottom line: Goodwill of North Georgia’s services and programs put people to work. It is an experienced and capable organization that operates with an effective business model, uses its resources well and focuses on bettering the North Georgia community.
HOW TO REACH: Goodwill of North Georgia, 235 Peachtree St. NE, Atlanta, GA 30303. Phone: (404) 420-9900. Website: http://goodwillng.org/.
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.
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On July 30, 2012, the National Labor Relations Board (“NLRB”) reached a decision ruling that Banner Health Systems non-union employer’s system of advising its employees to refrain from discussing ongoing internal investigation matters with fellow co-workers violated Section (a)(1) of the National Labor Relations Act. Prior to the Banner Health System decision, businesses had a certain level of discretion in implementing confidentiality requests. However, the freedom to make such requests may no longer be exclusively in the hands of management and may even no longer be permitted without special justification. Companies should take notice.
Courts and administrative agencies are cracking down on blanket employer requests for silence without adequate justification during investigations and the NLRB confirmed this standard in Banner Health System d/b/a Banner Estrella Medical Center, 358 NLRB No. 93 (2012) (“Banner”). The Banner decision came after a technician working for a hospital voiced concern to the hospital’s human resources consultant about certain practices he did not feel comfortable following and believed could cause a patient to become sick. After complaining to human resources, he was instructed to not discuss the matter with any of his co-workers while the hospital conducted its investigation. The same human resources consultant would routinely make identical confidentiality requests to other employees who made complaints that were subject to an investigation.
Given the recent Banner decision, corporate response plans must be sensitive to the level of confidentiality involved in internal investigation matters and specify the proper protocol for disclosing information within an organization.
Smart Business spoke with Andrea Gonzalez, senior manager at Cendrowski Corporate Advisors LLC, about the Banner decision and the potential trickle-down effect it could have on business confidentiality processes during investigations.
What should an organization learn from this decision regarding confidentiality issues in internal investigation matters?
Companies will need to have established protocol ready in the event an internal investigation is launched and the protocol will need to address the issue of confidentiality. There may be a valid justification for confidentiality between co-workers in an internal investigation. However, in order to withstand a challenge, such as the one in Banner, companies will need to be able to readily articulate these justifications. Blanket requests are likely to fail, but well-planned and established processes will not only survive any challenges but continue to allow for effective internal investigations consistent with management’s plan. Each corporate response plan needs to take confidentiality issues into account, be planned in advance and be individualized to the present issues so that it is not found to be overly broad or too burdensome.
How can an organization justify a confidentiality request and likely succeed if challenged?
In Banner, the NLRB discussed the appropriate criteria for determining whether an organization has met the burden of justifying its approach. Despite the hospital’s argument that the confidentiality was necessary for protecting the investigation, the Court stated the hospital needed to show (1) it was necessary for the protection of the witnesses; (2) evidence could potentially be destroyed; (3) testimony could be fabricated; or (4) there was a need to prevent a cover-up. The hospital was unable to do so.
Management should keep these factors in mind during the planning phase of their response plans and protocol should reflect this idea. Retroactive planning after an internal investigation has been launched should also be avoided.
In the event of a challenge to the confidentiality request, what is the best course of action?
One of the most important aspects of combating a challenge to a confidentiality request is an organization’s effort to document its basis for each confidentiality request. An individual file should be maintained with detailed and updated information regarding the investigation. A company should also consider engaging counsel to maintain privilege and identify additional information needed to support or contradict its position. A company may never have perfect information, but a well-maintained file is instrumental in its analysis of a challenge and the manner in which it should proceed.
How can an organization ensure their plan for confidentiality requests is implemented properly?
An organization should monitor guidelines or protocols in place and ensure any blanket policies have been removed. From the moment an investigation begins, the organization should continue to revisit their confidentiality requests and evaluate the facts of the current investigation. A check list of all questions and open items should be kept and findings should be reviewed for accuracy and completeness. The communications protocol to personnel involved in the investigation should also be presented to all parties in a clear and concise manner.
How can an organization gain confidence in established confidentially request guidelines and policies?
Organizations can engage a third party to perform a detailed independent review of an ongoing investigation to evaluate whether the established policies and procedures are being adhered to by individuals conducting the investigation. The third party can also assess whether the confidentiality requests would withstand a challenge under Banner.
The feedback provided by the third party would enable the organization to adjust their guidelines and policies to help ensure future confidentiality requests succeed if challenged.
Andrea Gonzalez is a senior manager at Cendrowski Corporate Advisors LLC. Reach her at (866) 717-1607 or firstname.lastname@example.org.
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