For some companies, obtaining a review of their financials may be sufficient. But for others, an audit may be their only option, says Deborah Sabo, a director at SS&G.
“Some companies are required to have an audit, such as publicly traded companies and those whose loan agreements require them,” Sabo says. “But minus such requirements, it is up to the business owner to decide whether a review or an audit better fits their needs.”
Smart Business spoke with Sabo about how to determine which financial tool is best for your business.
What is the difference between a review and an audit?
With a review, the accountants perform analytical procedures and will ask management a variety of questions. The accountants will compare financial information from the prior year with current year results and ask for the client’s explanation of why things have changed.
Unless there is something unusual, there are no requirements to obtain any independent corroboration to substantiate the personnel representations made by management.
Upon completion, the accountant will issue an opinion providing limited assurance on the fair presentation of the financial statements. The review opinion is different from an audit opinion as it provides a lower level of assurance with less of a scope.
An audit, on the other hand, provides the highest level of assurance. The auditor is required to obtain third-party independent evidence to substantiate the assertions made by management. If a company holds inventory, the auditor will observe that inventory. If the company has receivables, it will need independent verification from customers for the amount owed to the company.
With an audit, the auditor is required to gain an understanding of the company’s system of internal control. They’ll also spend a significant amount of time in the planning phases of an audit, as opposed to a review.
How can a company determine whether an audit or a review is a better fit for it?
If you’re a public company, registered with the SEC, you are required to have an annual audit completed. Private companies which usually have outside investors may require an audit to provide assurance that their financial statements are correct and management is utilizing their capital investment properly.
A bank may also drive the need for an audit, because the terms of a loan agreement may dictate an audit. However, if a bank is comfortable with a company, it may forgo that audit and only require a review.
Nonprofits also frequently require audits, because donors want to be sure their donations are being used as they had been designated and intended.
Outside of those requirements, however, it is management’s or the board’s decision to determine whether it wants to have a review or an audit performed. If a company has very experienced staff members, has reliable financial information and management is comfortable with the information it is receiving, a review is probably the better option. But if a business has very complicated systems with complicated accounting issues or it has outside investors, an audit would be the better option.
To save money, some companies may alternate which process they choose, for example, doing a review each year but opting for an audit every third year.
What do audits and reviews of a company’s management entail?
The process can be disruptive to a company. A review can generally take about 100 hours, but an audit can be twice that or significantly more.
In a review, the accountants will perform analytical procedures and then sit down with the client to discuss. Management will have to take time out of their busy days to talk to the accountants, which prevents them from doing their regular duties.
In an audit, the auditors could be at a company for weeks. The auditors are constantly asking questions and asking for supporting documentation, and that can be disruptive to the company.
What should a company look for when choosing an accounting firm to perform a review or an audit?
A company should look at the accounting firm’s industry expertise, depth of resources and reputation. In addition, the company should obtain the accounting firm’s Peer Review report. A peer review is a review of the accountant’s work by another accounting firm regarding the quality of the accounting firm’s work. The peer reviewer issues a report on the results of their procedures.
Deborah Sabo is a director at SS&G. Reach her at (440) 248-8787 or dasabo@SSandG.com.
When a family learns that a child has a disabling condition, planning for the child’s financial future might not be the first priority.
But by starting early and avoiding some key mistakes, a family can ensure that their child has care for life, says Philip S. Kaufmann, partner and chair of the Estate Planning and Probate Group at Stark & Knoll Co., L.P.A.
“Parents want to ensure that, after they die, their child has the highest quality of life possible,” says Kaufmann. “The laws are such now that, if complied with, you can get the best of both worlds. You can provide for a child with a disabling condition and not have it affect the child’s government benefits. But if you don’t plan correctly, you will have serious problems.”
Smart Business spoke with Kaufmann about how to leave money to care for a child with a disabling condition and ensure the child gets all the benefits to which he or she is entitled.
How should a family plan upon learning their child has a disabling condition?
The No. 1 thing is to deal with the emotional and family issues associated with the birth. But as soon as that is done, be proactive and look to the future. The more you plan now, the better it will be for the child in the future. You need to ask, ‘How can the quality of life that I’ve begun to give this child continue to exist?’ Then, position yourself to make the child eligible for future governmental benefits. Most benefits are not payable until the child is 18, but there are things you can do when the child is younger to make sure you won’t have a problem later.
How can a parent leave money to care for a child with a disabling condition?
Many people think you can’t leave anything to a child or the child will never get benefits. That’s true if you give directly to the child, but if you do it through a trust for their benefit, there’s no limit to how much you can leave; parents have the right to provide for a child’s quality of life without the child forfeiting the ability to receive Supplemental Security Income (SSI) and Medicaid.
To provide quality of life without endangering such benefits, a parent can set up a Supplemental Needs Trust (SNT). To qualify for SSI, a person cannot have more than $2,000 in countable resources, or $1,500 for Medicaid, so parents should alert people not to set up custodianship accounts for the child. Under the law, those accounts become the child’s at age 18 or 21, and will count against eligibility for government benefits.
As an example of how an SNT works, take, for example, a parent with three children, The parent may want to give each child $100,000, but if one child has a disabling condition, the parent should, instead, put that $100,000 into an SNT because, for Medicaid and SSI purposes, that money doesn’t count against receiving government benefits.
During the child’s lifetime, that trust with no cap on the amount that can be held in it can be used to provide for anything not considered a necessity. It is not to be used for general support but for things that bring quality of life, such as vacations, computers, entertainment, etc.
How can a parent preserve benefit eligibility if a child with a disabling condition is approaching age 18 and there hasn’t been any planning?
There are two types of Special Needs Trusts. The first type of trust is created by a parent, and the money never goes directly into the hands of the child and it can be used for supplemental needs. If the child passes away, there’s no requirement to pay the government back for benefits.
The second type of trust is a Medicaid Payback Trust. Let’s say, for example, that a child reaches age 18 and grandma had set up a custodial account which now has $100,000 in it, under the law, that is a resource because it belongs to the child.
Now what? You want to apply for Medicaid and SSI, but the child has $100,000 in his name. Here, the best option is a Medicaid Payback Trust, which removes the money from the control of the child to create a trust for supplemental needs. However, there’s a big negative to this type of trust. Assume the trust starts with $100,000 and, when the child passes away, there is $25,000 left. If, during the child’s lifetime, Medicaid has provided benefits, Medicaid gets every remaining dollar up to the amount of benefits paid over the child’s lifetime.
Oftentimes the child has a substantial amount of money due to a personal injury settlement. In that case, a lot of money may go back to Medicaid after the death of the child, but it’s better than spending the money down to zero before the child gets government benefits.
What information does a family need to start planning with an attorney?
First, they need to know in general what their intent is, who may be appointed as trustee and what their goals are. Second, financial information is critical, including the parents’ assets; whether the child has money in his or her own name; and what benefits the child may be receiving.
Third, the attorney needs evaluations that have been done, such as a plan done by a county board or a special education plan, information on the child’s background, what the condition is, what the medical report shows and what the prognosis is.
By planning early, a family can ensure that a child with a disabling condition is well taken care of for the duration of his or her life.
If you don’t know what you’re paying for and getting from your 401(k) plan, you could be facing a potential employee lawsuit. While plan sponsors aren’t required to choose the lowest cost plans, they are expected to know what they are paying and select ones with reasonable fees, says Mike Rogers, director of pension services at Burr Pilger Mayer.
“It’s not about the lowest fees, it’s about the reasonableness of the fees for the services being provided,” Rogers says. “If you have one payroll, no special enrollment needs, everyone works in the same building and you have a tech-savvy work force, a vendor should charge you X. But if you have six offices, run four different payrolls, have English and Spanish enrollment needs and need someone to be at each of your offices once a quarter, that should cost X-plus. But if both companies are paying identical fees, a case could be made that the first plan is overpaying and you could be open to a lawsuit from participants.”
Smart Business spoke with Rogers about fee transparency, benchmarking, and how a 401(k) specialist can lower your fees and help keep you out of legal trouble.
How important is fee transparency?
Fee transparency is the No. 1 issue. As a plan sponsor, when you select a vendor and your fund lineup, you need to know how much you’re paying each of the parties. The vendor should fully disclose upfront every component of the fees so that you don’t get hit with a lawsuit down the road on something that you didn’t know anything about.
The 401(k) plan lawsuits today aren’t like those against Enron, where someone bought stock at $90 a share and it fell to $2. These lawsuits are about whether you, as the plan sponsor, picked a fund or a vendor that costs too much. It doesn’t matter that the mutual fund was up 40 percent last year; it’s that there are less expensive versions of that fund available. As a plan sponsor, you need to be able to justify why you’re using a fund with a more expensive fee class.
The Bush administration said, ‘We are going to mandate how fees are disclosed both to the plan sponsors and to the participants so they know where their money is going.’ The proposed regulations got tabled but are expected to be finalized this year. What participants and plan sponsors really want to know is how much they’re paying for their plan and the funds. As a fiduciary, the plan sponsor is responsible for monitoring fees, but getting fee transparency is akin to sighting the Loch Ness monster.
How can a 401(k) specialist help reduce fees and share fiduciary duties?
A specialist can match your needs and expectations with those of an appropriate vendor. There are so many vendor options that it is hard for anyone that doesn’t specialize in this area to properly match your needs, expectations and costs with the various providers. The best answer for your company may be a plan that doesn’t pay commissions and uses low-cost mutual funds.
In addition, simply hiring a 401(k) specialist can cause vendors to be more proactive. Once you bring in a specialist, vendors realize that person knows how the game is played, and they may be more open to looking for ways to save you money or renegotiate fees.
As a fiduciary, the plan sponsor is personally liable in the event of a failure to fulfill his or her fiduciary responsibilities. But there’s no reason a plan sponsor should have to go it alone. Because 401(k) specialists focus on this area, they are typically a named fiduciary right alongside that sponsor. The two main differences between brokers and consultants are how they are paid and whether they can cross the line to fiduciary status. Many existing contracts specifically state that the vendor or broker will not be acting as a fiduciary.
What are the benefits of fixed pricing versus asset-based fees?
Historically, this has been an asset-fee business that charged on the size of your assets. If you have $1 million in your 401(k) plan and someone charges 50 basis points, that’s a $5,000 fee. When the plan grows to $2 million in assets, that fee goes to $10,000 regardless of whether your provider did any more work for you. The industry is seeing a switch to more fixed pricing despite the objections of many of the providers.
Fixed pricing allows for cost certainty and cost containment in your plan. If you pay $5,000 today on $1 million, and the plan goes to $2 million and you still pay $5,000, then the fee, as a percentage of assets, is declining as your plan assets continue to grow. Fixed pricing also allows your 401(k) specialist to focus on doing what’s best for your business instead of chasing the highest commissions.
How can benchmarking help you keep tabs on fees?
Benchmarking lets the plan sponsor see what it is paying in fees against comparable companies in its industry and of similar size. You need to distinguish between how much you are being billed and how much the vendor is charging participant accounts. The average plan sponsor, if the vendor doesn’t send a direct bill, may think the plan is free. But it’s not free. Everybody has to get paid, and if you’re not being billed directly, the expenses of the investments are higher and the participants are paying for those fees. Considering company executives typically have the highest balances, reducing asset-based fees is a win-win for everyone. When you start benchmarking, it becomes very apparent that your fees are X and they really should be X-minus.
Mike Rogers is director of pension services at Burr Pilger Mayer. Reach him at (408) 961-6336 or firstname.lastname@example.org.
The workplace is a hotbed of germs, and those disease-causing organisms are easily spread as people interact with co-workers and clients.
While you can never eliminate all the germs from your workplace, there are steps you can take to reduce their number, thereby decreasing the number of sick employees, reducing costs and increasing productivity, says Marty Hauser, president of SummaCare, Inc.
Smart Business spoke with Hauser about the simple and inexpensive things you can do to help keep your employees healthy while at work.
What can employers do to encourage their employees to stay healthy?
Study after study shows that washing your hands is a highly effective method of reducing the spread of the viruses and bacteria that can cause illness. But to be effective, it must be done regularly and in the right way.
Because germs can live on surfaces for up to 48 hours, employers should encourage employees to wash their hands several times a day, especially before eating, after using the restroom, after coughing, sneezing or blowing their noses, after using shared office equipment such as the fax machine and copier, and before and after meetings at which they shake hands.
Employees should be encouraged to use soap and water and wash for a minimum of 15 to 20 seconds, according to recommendations by the Centers for Disease Control. For workers unable to leave their workstations or those out in the field, sanitizing hand gels with a minimum alcohol concentration of 60 percent can provide an effective alternative.
In addition, employers should encourage sick employees to stay at home. Having one employee out for a week is better than having that person infect the rest of your staff and cause even more people to be out of the office or working at less than full capacity.
Can an employer mandate that employees get flu shots?
While most employers can’t make employees get flu shots, they should encourage them to do so. Start by educating employees on the benefits of being vaccinated and post information about the shots in prominent places in the workplace.
To further encourage vaccinations, employers can subsidize the cost of the vaccines or host an on-site flu clinic, as the more convenient it is, the more likely employees are to get vaccinated. The employer will be repaid the cost of the clinic several times over because employees won’t be missing work or underperforming as a result of illness.
What can employees do to help prevent the spread of germs?
People think they’re being sanitary when they cover their mouths to prevent releasing germs into the air when they sneeze. But that simply transfers the germs to their hands, where they can then be spread onto everything they touch.
Using a tissue and immediately disposing of it is the best option. If no tissues are available, encourage employees to sneeze into their sleeves, which can significantly reduce the spread of germs.
How can keeping a clean workspace help reduce the risk of illness?
Frequently wiping down surfaces in your workspace with disinfectant and paper towels can help kill germs and viruses that may be lurking. It’s also important to keep your keyboard, phone and mouse clean, especially if you are not the only one using those items.
Communal items such as the fax and copy machines can also harbor infections and should be cleaned frequently, which has the added benefit of increasing the lifespan of the equipment. However, touching even clean equipment can result in illness if the person who used it previously was infected, so employees should avoid touching their faces until they’ve had the chance to wash their hands.
What are some other tips for lessening the chance that employees will get sick at work?
- Educate employees about the danger of sharing food, utensils or cups.
- Use paper towels to turn the water on and off in the restroom to avoid touching potentially contaminated knobs.
- Consider alternatives to shaking hands when greeting people.
- Discourage employees from eating at their desks, which often harbor more germs than anywhere else in the office.
- Remind employees to keep pens and pencils out of their mouths, as these items can contain a high concentration of germs.
- Use paper towels and soap to wash dishes, as sponges and cloth towels retain germs. Dry items with a paper towel before putting them away to avoid leaving them on a potentially contaminated counter surface.
- Encourage employees not to come to work if ill.
- Clean out the refrigerator once a week to discourage the growth of bacteria.
- Make sure your cleaning staff is using products that kill germs.
- Provide hand sanitizer and tissues at locations in your office that experience high traffic, such as lobbies, meeting rooms and lunch rooms.
What are the benefits of promoting a healthier workplace?
Healthy employees are happier, more productive and perform better than those who aren’t feeling well. Healthy workplaces also have higher morale, a lower incidence of absenteeism and fewer injuries, accidents and workers’ compensation claims. And fewer illnesses can mean lower health insurance claims, as well.
In the end, the cost of doing nothing is much higher than the cost of taking a few simple steps to help your employees stay healthy.
MARTY HAUSER is the president of SummaCare, Inc., a provider-owned health plan located in Akron, Ohio. SummaCare offers a full line of health plans and ancillary products. Through its extensive network of more than 7,000 providers and over 50 hospitals, SummaCare offers coverage to more than 115,000 members throughout northern Ohio. Reach him at email@example.com.
If you anticipate your business growing over the next 12 to 18 months, now is the time to consider moving from a copper-based service to fiber optics for your data transmission needs.
“If you see your needs growing, fiber is the only way to go,” says Chris Hibbs, senior manager, engineering, for InsightBusiness. “If you need the bandwidth to be there all the time, you need it to be reliable and you need the speed to be there, you’re going to need fiber.”
Smart Business spoke with Hibbs about how moving to a fiber optics system can help you run your business faster and more efficiently and how the system can grow with your business with minimal hassle and expense.
What are the benefits of fiber over more traditional services?
Traditionally, upstream bandwidth is limited with cable modems and DSL, as there is much more bandwidth available to download data than there is to upload. That’s fine for businesses that are only using a data product to pull down data from the Internet, do research or run a small point of sale system that doesn’t require a lot of bandwidth.
Those mediums are also known for having fluctuating speeds depending on factors including traffic congestion and how far you are from a central office (in the case of DSL).
Fiber, on the other hand, has a dedicated connection, not a shared line, so it’s not subject to fluctuations in speed. Fiber has a committed information rate, with the same bandwidth for both uploading and downloading.
If you require a lot of upstream bandwidth, or up and down, and need it available every time you make a request, or you use delay-sensitive applications, jitter-sensitive applications or videoconferencing, then you need the bandwidth right then and there and can’t wait half a second or even 300 milliseconds for that bandwidth to become available like you may with another broadband product.
How can fiber save time and headaches as a business grows?
The biggest thing is that it’s massively scalable. Whether you’re buying a 10 Mb product or a 100 Mb product, your provider installs a 1,000 Mb fiber optic pipe, which is then throttled down to meet your needs. Then when you need more bandwidth, you can easily get more. It’s already installed.
With copper-based services, you can add T-1 lines and go from 1.5 Mbps to 3 Mbps to 4.5 Mbps, etc. You can keep adding T-1 lines, but at 6 Mbps, you now have four plugs going into your equipment. Then the technician from the phone company has to show up on site, sometimes add another card, add another cable, schedule that work, then you have to make sure your equipment has enough plugs to take that second, third and fourth T-1 cable. And sometimes you have to buy another card, and those parts aren’t cheap.
With a fiber optic product, the customer doesn’t have to change out ports, schedule time for a technician to come out or buy new equipment. It’s very convenient. You just pay an additional monthly rate for the added bandwidth, but there is no additional installation fee and no additional equipment you have to buy to accept that circuit because you’ve already got that circuit. And bandwidth only gets more economical as you buy more.
That bandwidth can also be increased on a temporary basis. For example, if a business wants to pull everything off from an old data center and push it down to a new one, it can increase its bandwidth so it doesn’t have to physically move its servers. That way they don’t have to change interfaces.
How can using fiber help keep a business up and running 24 hours a day?
First, many fiber customers have a dedicated number just for them that goes to engineer level people, not to a traditional call center. Also, if it’s 3 a.m. and your DSL modem is broken, good luck getting help. But if your fiber breaks down, you’re going to be able to talk to someone right away who has the ability to remotely access the box at your location to run diagnostics to try to figure out what the problem is and what is the quickest way to find resolution for you.
In addition, boxes are monitored 24-7 and alarms go off at the provider if it loses contact with the box at your business. Then troubleshooting begins immediately. Very often, the provider knows before the customer does that it’s having a problem.
How can fiber make a business’s connection more secure?
Security is a relative statement talking about which data transport is better than another, as the major two factors for transport security are physical security and monitoring. Physical security is important, no matter which broadband product is chosen by a customer, so the customer needs to make sure that their switches are physically inaccessible to others.
It’s pretty easy to come in, pull the connection from the customer switch and tap off of that if it’s easy to get to. But with fiber, the provider and the customer are directly connected, so if someone pulls that fiber from the switch facing your network, the provider gets an alarm. At that point, it’s going to be pretty obvious that someone installed a line between the two and that line can be halted.
CHRIS HIBBS is the senior manager, engineering, for InsightBusiness. Reach him at (502) 410-7357 or firstname.lastname@example.org.
With many tax opportunities available this year, being aware of your options can save you quite a bit of money as you do your year-end tax planning, says David McClain, CPA, MBA, manager in the tax department at SS&G Financial Services, Inc.
“With these new tax rules, the government is trying to stimulate businesses to spend more money, encourage growth in businesses, encourage businesses to buy new equipment and get money back in the economy,” McClain says.
Smart Business spoke with McClain about how to take advantage of changes in the tax code as you begin to prepare your 2009 tax returns.
What are the biggest tax changes that business owners need to be aware of?
One of the biggest updates is an extension of the increase in Section 179 expensing limitations. For 2009, a business can expense up to $250,000 of property that would normally have to be capitalized and depreciated, as long as it does not purchase more than $800,000 worth of property. For example, if a business bought $500,000 in equipment and this provision was not in place, it would have to capitalize the $500,000 and depreciate it over seven years. Under the increased expensing limitations, the first $250,000 can be taken upfront as an expense and only the second $250,000 would be depreciated.
Also, a new economic stimulus bill gives all businesses the ability to elect an up to five-year carryback for net operating losses (NOLs) incurred either in 2008 or 2009, but not both (at the election of the taxpayer). Businesses are able to offset 50 percent of the available income from the fifth year and 100 percent of all income in the remaining four carryback years. Small businesses that already elected to carry 2008 NOLs back three, four, or five years under the American Recovery and Reinvestment Act (ARRA) can elect to carry back losses from 2009.
How do new rules allow business owners to reduce the amount of estimated taxes they’ll pay in 2009?
With the ARRA, if individuals have an adjusted gross income (AGI) of less than $500,000, and more than half of their income came from a business they own with fewer than 500 workers, their estimated tax liability for 2009 can be 90 percent of their liability from 2008, instead of the typical 100 to 110 percent, depending on AGI. Even if they have not taken advantage of the reduced estimated tax liability, they can still reduce the fourth quarter estimate to reflect the lesser amount, helping increase cash flow at year-end.
How can changes in bonus depreciation save a business owner money?
Bonus depreciation allows a business to expense up to the first 50 percent of capital assets furniture, fixtures, etc. it purchased. Equipment typically has a seven-year recovery period. For example, if you bought a $10,000 piece of equipment, absent bonus depreciation, you would take first-year depreciation on a seven-year asset. But bonus depreciation allows you to deduct 50 percent of the cost or the first $5,000 in the first year. The second $5,000 would still be depreciated over seven years.
Bonus depreciation differs from Section 179 in that there are no income or placed-in-service limitations, and it can be taken on every qualifying asset. Only tangible property, such as equipment, furniture and fixtures, qualifies for bonus depreciation as opposed to real property, like buildings or land. Only brand-new property qualifies, whereas Section 179 also includes used property.
What tax law changes can benefit business owners on their individual returns?
The most popular is the first-time homebuyer’s credit, which has been expanded and revised. The credit is no longer restricted to first-time homebuyers. Taxpayers who have owned and used the same principal residence for any five consecutive years during an eight-year period are now eligible for a credit of $6,500. New homebuyers, those who have not owned a primary residence in the past three years, still receive the lesser of 10 percent of the purchase price or $8,000. The credit now expires on April 30, 2010, and only homes with a purchase price of $800,000 or less are applicable. In addition, a taxpayer can elect to treat a qualifying home purchase in 2010 as made on Dec. 31, 2009, for purposes of claiming the credit on the 2009 tax return. The modified AGI-based phase-out has been increased to $125,000 for single individuals and $225,000 for joint filers.
Another change is the payroll tax credit that most taxpayers received as a $400 payroll deduction throughout the year. The self-employed should have reduced their quarterly estimates to reflect the credit or will need to claim the credit on their tax return.
What other tax changes apply to individuals?
There are three to be aware of:
- New vehicle sales tax deduction. It applies to the sales tax paid on new cars, motor homes, light trucks and motorcycles purchased after Feb. 16, 2009, up to the amount paid on the first $49,500 of the cost of the vehicle. This can be added to your standard deduction if you do not itemize.
- Energy credits. These apply to energy-saving home improvements, including windows, doors, hot water heaters and air conditioners, that meet IRS guidelines. The credit is 30 percent of the cost, up to a lifetime maximum of $1,500.
- College tuition credits. Starting in 2009, the former Hope credit was replaced by the American Opportunity Tax Credit, which allows a credit of up to $2,500 per year per student. The new credit applies to all four years of school and includes the cost of books. It phases out at AGI of $80,000 singles/$160,000 joint filers. If the credit is more than your tax liability, it is still a refundable credit but only at 40 percent.
David McClain, CPA, MBA, is a manager in the tax department at SS&G Financial Services, Inc. Reach him at (800) 869-1835 or DMcClain@SSandG.com.
Although the urban legends surrounding the Sarbanes-Oxley Act of 2002 paint it as something to be feared, Clark Keeler says that it actually presents an opportunity for business leaders to improve and protect their companies.
For many years preceding SOX, CEOs and CFOs signed certifications in their public financial statements asserting that they maintained effective systems of internal controls. However, those assertions were never audited, so there was no verification of their reliability. Then came the downfall of Enron and WorldCom and the enactment of the Sarbanes-Oxley Act.
“The thing that business leaders primarily objected to about SOX was one section of the legislation, Section 404(b). That section required their auditors to ‘attest to, and report on, the assessment made by management,’” says Keeler, a director at Burr Pilger Mayer. “The act came into effect in July 2002 and required the biggest public companies to be compliant and be audited by the end of 2004. The act also incorporated penalties that effectively said, ‘If you fail, your officers can be fined personally or even go to jail.’”
Smart Business spoke with Keeler about how Sarbanes-Oxley has impacted business and why management should look at the act as a blessing, not a curse.
How should business leaders approach Sarbanes-Oxley?
Sarbanes-Oxley focuses on managing the risks around financial reporting. Instead of embracing the requirements as a means of improving internal communication and credibility with external stakeholders, management, as a whole, resisted the act, treating it as a forced-compliance law of little or no value. They too often abdicated responsibility to their auditors and consultants and said, ‘Get us compliant and keep us out of trouble.’ That often led to lack of focus and attention on details rather than the analysis of significant areas of risk. Management could have avoided much of the frustration the act created by approaching compliance as they would have in any other major project: by focusing on and addressing the significant risks and areas of weakness where their businesses could benefit, but not ‘sweating the small stuff.’
How can having strong internal controls help a business leader?
Strong internal controls are good business basics. Their purpose, in relationship to Sarbanes-Oxley, is to prevent or detect the risks of misreporting important financial information. Good internal controls help ensure reliable information on the areas that matter to the readers of the financial statements.
When management can prevent or detect problems before they mushroom into a crisis, the working environment inevitably becomes calmer. Having good information allows them to run their businesses without worrying about the things they haven’t thought of or checked on and it also reduces surprises. Once you have the information you need, on the things that matter, you can focus on the business model issues that really lead to success.
Sarbanes-Oxley requires management to figure out where the risk areas are that could cause them to make material errors in their financial statements. It then requires them to put the controls in place that would prevent the errors from happening or allow them to be detected and corrected in a timely manner. Reliable financial reporting supports management decision-making and provides credibility to investors and other stakeholders. These are good things.
How do you identify your risks?
All business risk assessment starts with determining what can go wrong in significant business processes and what can be done to prevent or detect the effect of those risks. Evaluating financial reporting risk is a basic process that looks at who has a stake in the company, who reads the financial statements, and determines the areas they care most about. Once management identifies the significant items that their stakeholders evaluate, they need to take steps to ensure that the information relating to those items is materially correct. Obviously, you want your stakeholders to know they can rely on the accuracy of what they are reading.
Evaluating what your key business processes are, what impacts them and how you ensure that the processes operate effectively is actually pretty straightforward once you have identified the areas of sensitivity. If it is something you can prevent from ever happening, you take those actions. If you cannot prevent it, you put monitoring controls in place so you know if it happens and give yourself time to react to it. Once you have the controls in place, you simply have to test them periodically to make sure they are still protecting you.
How can having strong internal controls and knowing the details of financial statements benefit not only public companies but private ones?
Having good internal controls is ultimately about controlling the information around your critical business processes. If you have the information to prevent or detect risks to your business, you can manage proactively. You will have reduced the ‘surprises’ in your operating environment and will have gained a measure of control of your business. For a small company looking to sell, reducing information risk to the buyer is critical. If every time your buyer asks a question you have to say, ‘I’ll get back to you in a couple of days,’ their confidence in how much you know about your business and how much they are willing to pay is reduced. Conversely, if every time they ask a question you can answer confidently, their comfort and interest is reinforced.
More importantly, however, internal controls support your day-to-day efforts to create the most value for your company. They keep you focused on the things that matter and provide the reliable information you need to make your best business decisions every day.
Clark Keeler is a director at Burr Pilger Mayer. Reach him at (415) 288-6280 or email@example.com.
With less money to spend and smaller marketing departments, it’s time to rethink the way you look at marketing.
“The challenge is that the number of marketing tools available are increasing exponentially,” says Bo Bothe, president and chief creative officer of BrandExtract. “With so many options available, CEOs need to stop thinking about the way they’ve always done things and start thinking about how to market more effectively and efficiently.”
Smart Business spoke with Bothe about how to get more marketing impact today for less money.
How can you begin to market more effectively?
Start over. Start thinking strategically instead of tactically — force yourself to rethink what you’re doing. Companies waste far too many resources on tactical solutions, before they get their brand position and messaging in order. Right now, you should be asking yourself, ‘If I can only have one marketing goal this year, what would I do to achieve it? What would move the needle most?’ Then work backward from there.
The business landscape has obviously changed in the last 18 months, and a company that doesn’t take the time to re-examine whether or not their marketing and messaging is in line with their customer needs will be left behind as business continues to improve. Talk to the key stakeholders in your company — sales, marketing, customer service, distribution — and find out what they need to do their job more effectively. You may be surprised to find out that it isn’t a brochure or flashy Web site. Then, talk to your customers to find out what really matters to them today; they need you to convince them why they should be interested in you.
What is the most important step you can take to market more effectively?
The biggest mistake leaders make is not engaging their employees. Companies come up with mission, vision and value statements, but they often don’t communicate with employees about how to talk about them and what makes them valuable to the customer. Whether you have 20 employees or 20,000, imagine if every one of them had a clear understanding of the value the company provides — they would all become an extension of your sales force. Now think about the media channels they have at their disposal today. Your sales efforts can be much more effective if your whole employee base is on message.
Engaging your employees to sell is done most effectively through constant and consistent communication. It’s not just posters and newsletters. It’s town-hall meetings and training managers to train their people — not only about what you want them to say but why it is important. You need to set the strategy and make sure it is communicated to leadership and that leadership is communicating it to management and that management is communicating it to employees. This ensures that your employees are educated about what’s going on and that everyone knows where you’re headed and why it’s valuable for both them and for the customer. If you do that, they’ll be able to bridge the gap for you and make your marketing efforts more efficient.
How can you better target potential clients?
Profile your customers. What does your best customer look like? If you know that, then you know where to most effectively focus your marketing and sales efforts.
You also have to know what you’re good at and focus on it. That doesn’t mean you stop marketing or reduce your investments, it just allows you to invest in the right things. Cost-effective marketing is about knowing your audience, knowing what you want to get from that audience and focusing on the best people to get it from. That allows you to reduce inefficiency and become more cost-effective because it doesn’t have you running down the wrong path. You also need to talk to your customers. I don’t mean polling, I mean actually talking to your customers to find out whether or not they have a clear understanding of your company, the range of products and/or services you offer and what differentiates you from the competition.
What do you need to beware of when considering your marketing options?
Be wary of shiny objects. Remember that all of these new media choices are additional tools (just like a brochure or Web site) and, whatever you do, make sure you have a strategy to make them work for you. Just because everyone’s on Twitter doesn’t mean you should be doing it. Focus on what can move your brand forward, as opposed to doing something just because everyone else is doing it.
How do you measure results?
It comes down to understanding what matters most. Is it increasing order size, growing the client base, driving more people to the Web site or something else? You need to define what is going to make a difference and ask how much, if any of it, is moving the needle. Approaching your marketing efforts with specific goals in mind increases your chance of success and provides a foundation that enables you to make decisions about your marketing spend. Marketing needs to be thought of as a revenue generator, not an expense. If you don’t have an internal system of measurement, you don’t know what’s working and what’s not, so everything becomes important. And we all know that approach is a very costly proposition.
Bo Bothe is the president and chief creative officer of BrandExtract, an integrated branding and communications firm that guides growing companies by providing strategic branding solutions, marketing communications, advertising, print and interactive services. Reach him at firstname.lastname@example.org or (713) 942-7959 or visit www.brandextract.com.
In today’s marketplace, companies are looking for every advantage they can get to not only survive but thrive. And to do this, you as a chief marketing officer or CEO must find a way to change the game for your company.
“The market has changed, the economy has turned and clients aren’t thinking about the rational buying decisions they made in the past,” says Jonathan Fisher, CEO of BrandExtract. “If you’re selling the same way and approaching and reaching out in the same way you’ve always done, you’ve probably lost all competitive advantage. You really have to think about new and fresh perspectives in the way you do business to change the game and make the playing field a little less level.”
Smart Business spoke with Fisher about how to take a fresh look at your business and leverage that information.
How do you get started with looking at your company in a new way?
It’s about rethinking what you know and what you’re doing in the marketplace. It’s about looking for the obvious. You have to challenge the norms and ask, ‘What are we doing? Why are we doing it? Is there anything we could be doing differently?’
At the same time, you need to take a close look at current gaps ‘What aren’t we doing? What’s missing from the industry right now that we can provide?’ and then start thinking, ‘We could sponsor that. We could build that. We could survey that.’
As an example, there is a law firm that has been doing industry surveys for six years, and it creates trend data that it gives away for free. Now, survey processes aren’t new, but most companies do it for their own benefit, not for the industry’s benefit. By taking a leadership position in the industry where this kind of information previously didn’t exist and putting the survey together of its own accord and of its own time and money, this firm now owns this space. And because it has the intelligence from the trend report it does every year, it was able to completely shift its sales tactics. It’s able to use this to shape fees, proposal processes and messaging on the Web, and carve the data up for vertical industry segments for a greater competitive advantage.
This firm uses the data as a door opener and a reason why you should talk to its attorneys versus someone else’s which is always the challenge to developing new business: Why you?
When you’re looking for that game-changing idea, who should be involved in the process?
You have to be willing to step back and engage people who have the ability to offer a different perspective about your products or services, whether that’s an outside consulting or marketing firm or your customers or someone within the company who hasn’t had a chance before to bring ideas to the table.
It’s all about listening with a fresh viewpoint. Ask your clients for their perspectives on how they see your products and services being used, or bring in outside consultants who have experience helping people identify fresh points of view. Or reach down into your organization to hear from people you don’t usually have contact with.
Smart leaders look at the whole company. It takes strong leadership to recognize that there’s always something you don’t know. If you’re open and receptive to finding out the unknowns, then you are typically going to uncover a game-changing opportunity.
This means creating a culture that’s willing to constantly evaluate and improve, that knows it’s never maximized its opportunities. I don’t know any CEO who would say he or she can’t do something better. You need to create open-door policies, create a cross-pollination of ideas and get different people and different teams together on a regular basis so those opportunities can flourish.
If a business is doing well as is, why does it need to seek game-changing opportunities?
Your competition is always looking to move up, and they will find a better way to do business. The number of businesses unaffected by the economy and satisfied with current sales are few. If this describes your business, then congratulations because you’re the exception. But if not, then uncovering new opportunities and creating competitive barriers can swing the pendulum back to having the marketplace edge.
Category leaders rarely maintain their category position. It’s only a matter of time before someone will outthink you. For CEOs who say what they’re doing works just fine, obviously they’re not thinking about the future because change is inevitable, whether it comes from the competition, from the technology, or from the market forces that are out there. You always have to be looking ahead, and you have to be thinking about your game-changing strategies.
Jonathan Fisher is CEO of BrandExtract, an integrated branding and communications firm that guides growing companies by providing strategic branding solutions, market positioning communications, advertising, social, print and interactive services. Reach him at (713) 942-7959 or (214) 770-7378 or email@example.com.
Web-based solutions have become a critical component for any company to succeed, says Andrew Franklin, implementation manager at Arke Systems.
“Web-based solutions are a necessity in today’s business landscape,” says Franklin. “They are a means for your software, for your business applications, to be available through the Internet without having to lasso your employees to specific internal networks. Whether it’s a Customer Relationship Management solution to streamline your sales process, or developing an internal portal that your employees can access from anywhere in the world, the advantages of using the available software and customizing it to your organization are undeniable.”
Smart Business spoke with Franklin about how to implement Web-based solutions at your company that will truly benefit business.
What advice would you give leaders who say Web-based solutions wouldn’t work at their businesses?
If someone told me this wouldn’t work at their company, I would tell them to take a look at their business processes and answer that question again. Within every organization, there is a need to respond faster, to automate tasks and delegation, to access information remotely, to eliminate redundancies in manual processes and to streamline the business. Web-based solutions offer exactly those capabilities. No matter what your business may be, if you’re growing you’re innovating, and in today’s world, Web-based solutions offer the flexibility to fuel your innovation.
How can a company get started implementing a Web-based solution?
The first step to any well-planned project is to answer some preliminary questions, such as, ‘What is the main objective of the project? What problem is this going to solve? What benefit is it going to bring to the organization?’
There are ways to phase in these technologies and there are free trials or download versions that let you get used to the product before making a decision about it.
You don’t have to do it all at once, you can do it in baby-step fashion, but the thing to remember is that those baby steps are building toward a greater goal. You’re aiming for the vision of that long-term goal on the horizon and honing the process. Before you finish one step, you should know exactly where you’re going next.
How important is it to get help from a third party?
All too often, companies will overload their existing internal resources with a project like this, and nine times out of 10, they just don’t get the backing and support that are needed to flesh out an undertaking such as a Web-based solution. If you haven’t done a technology project like this before, talk to at least a half-dozen firms before choosing a partner. You need to find a firm that asks you challenging questions and demonstrates that it’s thinking 10 steps ahead.
Look for a firm that complements your processes and that you feel comfortable with. With the right deployment, the right objectives, the right technology and the right partner, you can streamline operations, support faster and stronger communication and benefit your company immensely, but the technology out of the box isn’t going to magically solve the woes of a business. If the vision is flawed, and you have the wrong partner, it’s not going to solve anything.
What are the benefits of investing in a Web-based solution?
Implementing a Web-based solution will benefit a company by facilitating communications both internally and externally. Internally, companies can centralize their knowledge bases, automate tasks and work flows, and create and sustain electronic records that no longer rely on filing cabinets and access to fax machines. Externally, companies are able to respond to their customers’ evolving needs with dynamic software that empowers them to engage their customers in new and exciting ways.
The consequences of not using Web-based software are real, as are the consequences of poor implementation. All too often, technology is treated as a panacea that will transform a business right out of the box. But this isn’t always true, as technology without expertise, guidance and support is not a wise investment. The decision to employ a Web-based solution is fundamentally a sound one, as long as business leaders understand that with that choice comes a responsibility to choose a partner that will help them leverage that investment for the greatest return.
The real payoff with an investment in a Web-based solution comes with solid preparation, solid vision and a partnership with a company that will help exploit your investment to its fullest.
Andrew Franklin is an implementation manager at Arke Systems. Reach him at firstname.lastname@example.org or (404) 812-3123 x160.