Kristen Hampshire

Friday, 22 September 2006 07:22

Employee benefit-plan audits

When we purchase stock from a corporation, we want evidence that its earnings statement is accurate. We want to know we’ll get a just return.

When we do business with another organization, we want confirmation that its records are clean.

When we invest dollars into a 401(k) plan at our place of work, we expect that this money will be deposited into the plan in full, and distributed where we want it.

“An audit basically verifies that all the information is correct,” says Ken Levine, director in the auditing and accounting department of SS&G Financial Services Inc. His specialty is performing benefit-plan audits, an in-demand service for businesses with more than 120 employees enrolled in a plan. “You take money out of your paycheck and put it in a plan. The Department of Labor requires that someone else audits that plant to make sure it gets your dollars and those dollars are being invested where you want them invested.”

Smart Business spoke to Levine about which businesses need the audits, what they involve and how to locate a reputable firm to perform the evaluation.

What does an employee benefits plan audit involve?
Essentially, an outside accounting firm reviews the books and records of a benefit plan, which is considered a separate legal entity from the business. The auditor then tests information in these records to ensure that information is accurate.

These audits typically cost from $8,000 to $15,000, though most mature plans may contain several million dollars or more. The investment in checking that records are correct is slight compared to the amount employees invest and earn over time. Usually, the company that sponsors the plan will pay for the audit.

What businesses are required to get an audit?
The DOL requires that companies with more than 120 certified participants get an audit of their employee benefit plan. Businesses with fewer participants aren’t required to get the audit. By setting a 120-employee cutoff, the DOL allows smaller businesses to avoid this expense.

How should businesses prepare for an employee benefits plan audit?
Business owners can make the process as efficient as possible by communicating with their auditors and coordinating efforts. There are certain documents an auditor will request.

First, the company must produce an annual trustee statement. This may come from a bank, insurance company or an investments firm like Fidelity or Vanguard.

Next, auditors will review participant information. Most plans require that employees work at a company for a set period of time before they are eligible for enrollment. The auditor will see that no who qualifies for the plan is barred from participation, and that those who participate meet standards. Each plan has its own nuances.

Then auditors will ensure that vesting is accurate. Let’s say a company matches 25 percent of employees’ contributions. The plan requires that employees work at the company for one year to get 20 percent of their investment, two years for 40 percent, and so on. These numbers must be accurate and clearly reported so auditors can approve them.

Finally, businesses should produce an audit report on their investment service provider. Because we operate in a virtually paperless environment, the auditor wants to know that controls are in place at the company that provides the benefits plan. Think of it this way: Your auditor is checking your numbers, and he or she wants to know that the investment company you work with is in the clear, too.

How can a business owner find a firm qualified to perform employee benefits plan audits?
Seek out a firm that expresses a major commitment to auditing employee benefits plans in particular. Find out if they are members of the AICPA Employee Benefit Plan Audit Quality Center. Ask for references. Hire an outside consultant with technical experience in how benefit plans work so he or she can provide solutions if there are discrepancies in the report. There are corrections processes set by the DOL, and the firm should understand how these might apply to businesses that find themselves in trouble. Usually, these slips are inadvertent and can be easily remedied with the help of a professional.

In the end, an employee benefits auditor will deliver an opinion that hopefully confirms that financial statements are accurate. Companies, by in large, take these audits very seriously. They realize that they are dealing with their employees’ money, and they want to do it right.

KEN LEVINE, CPA, is a director in the Accounting and Auditing Department of SS&G Financial Services Inc. Reach him at or (440) 248-8787.

Monday, 28 August 2006 12:57

At your service

You set high standards for your employees and lofty goals for your business. You expect results and are rewarded with successes when your company fulfills stringent demands, which are necessary in a competitive business world.

But do you choose your bank with the same high-performance ideals in mind?

“Business owners’ banking needs are not one-size-fits-all,” says Greg Campbell, district sales manager for Sky Bank. “It’s about finding what products or services will make their lives easier.”

Because there are so many “moving parts” in the financial industry today, developing a lasting relationship with a financial institution can be difficult. “People move into different positions within the same organization or they jump from one financial institution to the next,” Campbell says. “You want a relationship with a banker that will take you under their wing, educate you and provide you with options to help grow your business.”

Though most banks claim to both save time and provide convenience, not every financial institution garnishes the package with personal service. More than anything, business owners need a bank they can depend on for sound advice — an institution capable of customizing a program that suits individual businesses’ needs.

In short, banking relationships should run deeper than the transaction.

Smart Business asked Campbell to explain what characteristics client-centered banks provide, and why you shouldn’t enter a banking relationship with an institution that doesn’t recognize your face.

What are some immediate signs that a bank caters to its business clients?
First, tellers in the bank where you regularly do business should know your name. When you walk in, does the staff provide a warm greeting and welcome you to the financial center, or do they drop their heads or continue a phone conversation?

Next, how accessible is the bank? If you have a problem, do you have to dial an 800 number and get transferred several times before talking to a live person?

The front line with any small-business banking client should be the personal banker or a branch manager. When you open an account, your point of contact should explain how you can reach him or her with questions and promise that personal attention. That initial meeting is the foundation to your banking relationship, and your first impression should be one of assurance that your needs will be met.

Finally, does the bank call you if there is a problem, or inform you days later via U.S. mail? Banks that make personal phone calls to alert clients of even simple issues, such as overdrafts, show more concern for your financial health.

What if a business owner doesn’t want to spend time away from the business to complete a transaction?
You should check to see if online business banking is an option. Though consumer online banking is fairly standard, not all financial institutions — especially smaller ones — offer the service for small business accounts.

Several online tools are available so that business owners can do their banking from the comfort of their offices. Online bill payment is one. You can set up recurring accounts payable or bill payment, or choose to make a single payment to an individual vendor. Another convenience is the ability to transfer funds online. Many times, customers wait in line for these simple transactions when they could manage them easily without leaving their desks.

One of the greatest benefits to online benefit is the ability to more carefully manage accounts on a day-to-day basis. Not sure whether a check was cashed? Log on to your online account and find out. Need to see a copy of a check? Many banks actually file images of checks online so you can search by number and locate it electronically.

Is online banking secure?
Contrary to popular belief, online banking is extremely safe. Banks generally put in place various firewalls and password protection devices. If you think about it, online banking is as safe if not safer than the postal service. When you drop a letter in the mail, who knows where it goes?

As far as troubleshooting online accounts, nine out of 10 problems can be solved at the branch level. Employees at the financial center where you bank should be your liaison.

Is it better to bank at a national financial institution?
Regardless of whether you choose a large, national bank, you’ll be better off if your financial institution makes decisions locally. Will your lending needs for an Akron/Canton-based business be addressed in Los Angeles? Every region has a different economy. Local-decision making is critical so business owners can ensure they are on a level playing field with the bank.

GREG CAMPBELL is district sales manager for Sky Bank. Reach him at For more information, visit

Monday, 31 July 2006 12:13

Customer U.

What your employees don’t know about your business could hurt you. As business owners, we dedicate time to training our staffs, but education doesn’t stop there. A consumer population of smart shoppers expects answers - they do their homework before making purchases or signing on for services, but they don’t always read the fine print. It’s your job to steer them in the right direction.

“Education is the key to success in any business,” says Julie Flatt, chief operating officer of floridacentral in Tampa. “Educating the consumer is nothing more than relationship building, and that should be a No. 1 priority.”

Here, Flatt discusses why honesty, listening and the ability to offer solid advice about your products and services will result in repeat business.

Can you assume that employees can take on the charge of teaching members?
We have to begin first by educating our employee. Without a knowledgeable, trained staff, you cannot provide the best quality products and services. Floridacentral’s brand IS their employees, so we must train and develop them to protect our member’s financial needs. We do this through an in-house training program and a ‘floridacentral university,’ where employees can earn degrees and they are recognized on an annual basis. We also give employees access to a library of educational resources and tuition reimbursement for college courses. This training must also extend to the back office - your operations. After all, they support your frontline, which has direct contact with our members.

What do you stress to employees during training?
When it comes to communicating with members, honesty and active listening are critical. Knowing our full line of products and services is a given. We need to be upfront with members — we need to be someone they trust. It is important for a financial institution to be up-front about all costs. Many members do not read the fine print, and it is up to us to make sure they do. We must also teach them what questions to ask other service providers about the same product. That way, when they shop the competition, they will have the information necessary to make a smart buying decision.

What misconceptions do business owners have about member education? Do we assume they know more about our businesses than they do?
I don’t think we really give our members enough credit for what they know. Society is an environment of shoppers. They look for excellent service, friendly staff and quality products. Most importantly, they want to see a tangible benefit from doing business with you. This is why we have to spend the time to educate our members. It is up to us to ask them the right questions so we can suggest the best products and services for their needs. This all goes back to educating our own employees to ask those questions and have an ear open so they can teach members about our offerings.

What happens when business owners don’t educate members?
The biggest investment business owners make in education is the time they spend talking to members about products and services and helping them make informed decisions. This is why active listening is so important. We need to tune in to opportunities to teach members about products and services we offer. If a member comments that they are looking to buy a new car, we must recommend our solution for their next purchase. If we ignore this comment, we could miss out on a sale. Ultimately, business owners who don’t listen for opportunities to educate can lose business. Their members will go down the street to the competition that offers the same product at a higher cost and a lower level of service. If members don’t know what you can offer, they will find what they need somewhere else.

What are some ways business owners can educate members?
Face-to-face interaction is the best for many reasons. First, you have members’ undivided attention and you can discuss all options available to them. They can see your sincerity — and that you want to do what is best for them.

If you can’t make direct contact with members, take advantage of tools like newsletters, promotions or your Web site. But remember, you can’t always rely on these sources. Not everyone reads carefully, and our members could miss details about products that are well suited for them. The most effective way to educate members is communicating with them in person.

What ‘credits’ do business owners get from educating members?
Payback for member education is repeat business and word-of-mouth marketing. If you treat a member well and steer them toward products that suit them, they will tell their friends that you spent the time to educate them. This goes back to the trust factor. If members trust you, they will recommend others to your products and services. At floridacentral, meeting our member’s financial needs mean reliability. We must expect our employees to exceed our member’s expectations by educating them on the products we offer and the service they deserve. That is what will produce a win-win situation for all of us.

JULIE FLATT is chief operating officer of floridacentral credit union in Tampa, Fla. Reach her at

Saturday, 29 July 2006 20:00

Building value

Income-producing real estate is a stable investment, especially in the Midwest, where low capitalization rates hike up the perceived value of commercial properties.

“Capitalization rates in the Midwest are significantly below those in other regions, so it’s a good opportunity if you want to invest in real estate,” says Craig Johnson, president and CEO of Franklin Bank, Southfield, Mich.

Investors from the East and West Coasts are buying up buildings in places like Michigan, as are business owners from sun states like Florida, where cap rates are much higher. What’s more, property purchased at low cap rates are more likely return more than a comparable investment in common stocks over a 10-year holding period.

Smart Business talked to Johnson about breaking into the commercial real estate market.

What do low capitalization rates mean for investors, and how are they figured?
Capitalization rates, or cap rates, are the standard for measuring the value of income-producing real estate. To figure the value of a commercial property, divide the net operating income by the cap rate. For example, if the net operating income is $10,000 and the cap rate is 9 percent, the value is $111,111. The lower the cap rate, the greater the value. That’s why the lower average cap rates in the Midwest are drawing interest from investors in other areas of the country.

What sort of risk is associated with commercial real estate investments?
With any commercial investment, you have tenant risk. As tenants come and go, you risk having to co-tenant the building. Also, you must manage the ongoing maintenance and repairs of the building -- general upkeep. Evaluate those considerations against your risk tolerance and knowledge of the real estate market.

Someone with less of a risk tolerance is more likely to buy a retail credit tenant facility such as Walgreens. Credit tenants are Fortune 500 companies or strong regional businesses. On the other hand, someone who knows more about real estate and is willing to take a greater measure of risk might buy an office or industrial building, or a retail strip center with several tenants, none of them credit. Obviously, property that carries a larger degree of risk also carries a larger opportunity.

What about single-tenant properties?
If you are going to buy a single-tenant building, you need to make sure the term of the lease and the current tenant are agreeable. If the tenant has three years left in the lease, are you comfortable with that? Keep in mind, because there is a risk factor when a lease will mature in a short period of time, the cap rate at the time of purchase ought to reflect that risk.

Is tenant turnover necessarily a bad thing?
It depends. If turnover allows you to re-tenant the property at a higher rate, the answer is no, turnover is not bad. In that case, it can present an opportunity to increase your net operating income and the value of your property. However, if there is tenant turnover and you can’t fill the space with a new lessee, you risk losing money on your investment until another tenant signs the lease.

What advice can you offer to those without previous real estate investment experience?
If you do not have knowledge of real estate and this is your first investment, you need to partner with a good broker or management company -- someone who can assist you during the process. And start small; don’t jump at the first opportunity. Make sure you investigate the market with the assistance of your banker and professional broker, and look at a number of opportunities before making a decision.

First-time investors may consider buying within their region before seeking out opportunities in other areas. As you become a more seasoned investor, location won’t matter as much, especially if you are buying a credit tenant, where you really are investing in the credit of the tenant in the building, not necessarily the building.

Regardless of where you choose to invest, you’ll want to bring on board a management company to handle day-to-day grounds issues with the building. You want to invest in the building, not devote valuable time to maintenance and tenant issues that a building management company could address more efficiently.

Whether your impetus for investing in real estate is to produce cash flow or to secure a retirement fund, the Midwest market is a promising region to get your feet wet. With advice from a professional broker and assistance from a management firm, you will ensure that your investment is stable and your property cared for.

CRAIG JOHNSON is president and CEO of Franklin Bank, Southfield, Mich. Reach him at (248) 386-9860 or

Friday, 28 July 2006 20:00

The Beard file

Bachelor’s degree in finance and master’s in business administration, Miami University, Oxford, Ohio; master’s degree, international economics, University of Detroit Mercy

First job:
I entered the management training program for graduate students at Chrysler, and my first job there was a buyer of small fasteners.

Whom do you admire most in business and why?
In our world, leaders like the Rale brothers, who were the founders of Danaher, which is a much larger version of what TriMas is. Based on good culture and good discipline, I think we can become what Danaher is today — a much larger but similar business model as TriMas.

What was your toughest business challenge?
Recognizing when you should no longer own a business. The reality is that businesses change, markets change and sometimes, the right decision for the company and its shareholders is to let one of the kids go.

When you manage a collection of businesses, you don’t always sell a company for a bad reason. You may have made it as valuable as you can. But those are still tough decisions when you come to the conclusion that one of the children has to leave the nest.

What is your greatest lesson learned?
Don’t overpay. When people look at business opportunities, they get very excited and they want to buy something for all the right reasons.

But it’s very easy to talk yourself into values that might be at too much of a premium. You must have discipline.

Describe your management style.
I’m a micro-understander, not micromanager. I really try to work as a partner to the people running our companies, who know those businesses very well.

Friday, 30 June 2006 05:46

The Ishbia file

Born: Detroit

Education: Bachelor’s degree, accounting, Wayne State University, Detroit

First job: An accountant for a small meat company in Detroit

Whom do you admire most in business and why?
I admire my partner, Alex Karp. Not only is he a very sharp businessman and an honorable individual, he has gone through great hardship. He survived the Holocaust and has been my mentor throughout the years.

What has been your greatest business lesson?
Integrity is a tremendous virtue in operating a business, and if your employees and customers trust you, you can go a long way.

What was your toughest business challenge?
The challenge of integrating the second generation into the business has been a rewarding process for me. I am seeing them flourish and excel in this business, and not only am I proud, I am thrilled that they are on board to run the company for another 37 years.

What is your secret to success?
Hard work and dedication in any business are what you need to be successful.

Describe your leadership philosophy.
I’ve always been very hand-on, and I personally like to know everything that is going on in all aspects of the business. I try to stay on top of all of the various aspects, from distribution to warehouse operations. I am learning that I have to delegate authority to other people — our second generation.

Tuesday, 23 May 2006 20:00

Ready to buy?

Investing in real estate can be risky business for owners who must set aside years worth of capital for a down payment. Not all companies can afford to sacrifice cash flow for a long period of time.

“As a business owner, you take a different view of real estate,” says Craig Johnson, president, Franklin Bank, Southfield, Mich. “Before buying, you need to review your capital needs. Are you willing to tie up your down payment, which is generally 20 percent, into a long-term asset? Or are you better served by leasing space and retaining that cash for working capital?”

This decision is one that involves several parties: a CPA, lawyer, financial adviser and your banker, who ultimately will provide the financing to make your dream office a reality.

Owning a building or office comes with numerous benefits, which is why so many professionals choose to purchase real estate rather than lease. But as with any legal and financial transaction, business owners must prepare a number of documents and understand the investment before approaching a bank for real estate financing. Here, Johnson discusses which businesses may consider buying versus leasing, and how owners can secure the capital they need to seal the deal.

During what phase of a business life should owners consider buying versus leasing?
In the long run, buying is a better value than leasing for most business owners. Generally speaking, an investor will want to earn a rate of return on the business owner’s lease payments, whereas someone buying a property figures in appreciation and the advantages of ownership.

But not every business is in a position to buy. A company in the high-growth phase of its business life cycle should not be buying its real estate.

Before making the decision to invest in real estate, owners should determine whether they can do without the 20 percent to 25 percent down payment that gets tied up in real estate when they purchase a property. Would that cash better serve the business by earning additional revenues? Should that cash flow be used to provide working capital or fund research and development for new products? Would holding on to that down payment mean the owner can borrow less on a line of credit?

What type of businesses typically benefit from buying?
Making the decision to buy is easier for some business owners than others. We notice that professionals such as dentists, doctors and accountants like to own their real estate. This makes sense because those who have practiced for a long period of time know how their business will grow in coming years. And in most cases, these professionals work a 40-hour week, so they can only book so many appointments.

On the other hand, a manufacturing facility could add another shift of employees or need to expand its operation to accommodate a new product. Some business owners purchase a building and can earn income from their investment by leasing offices to other professionals. Purchasing real estate is attractive for owners with this goal.

Other professionals use their real estate investment as a retirement vehicle. For example, a dentist may purchase real estate for his practice. When he retires, he may sell the practice to a young professional and lease the real estate for a period of time.

Once a business owner decides to buy, what should he or she prepare discussing financing with a banker?
First, we take a look at the building they are buying and what their down payment needs to be. Usually, this is 20 percent down in cash. They may not have this money today — it may take six months to amass the cash. But during that time period, they should talk to the landlord and determine what additional costs they will incur once they own the building. That way, they will be prepared to facilitate the sale.

What are some factors business owners may overlook during the real estate financing process?
They need to make sure they have done their due diligence on the building itself. Get a roof inspection make sure you get a Phase I Environmental Site Assessment (ESA). The bank will require these and other documents, unless the building is brand new. After all, the last thing you want to do is buy the old cash cow that nickels and dimes you to death. You need to understand what you are buying and make sure you have the cash reserves to make repairs, if necessary.

On the flip side, if you know you will need to make repairs to the property, you can work with a bank to build provisions into the loan. The bank can allocate funds to you so you can finance those repairs.

CRAIG JOHNSON is president and CEO of Franklin Bank. Reach him at (248) 386-9860 or

Wednesday, 24 May 2006 05:08

Turnaround artist

When Bob Cubbin was named president and CEO of Meadowbrook Insurance Group in May 2002, its stock price was below $3, down from an average of about $7 in early 2001.

Two unprofitable lines of business were hurting the company’s profits, and a 13-year cycle of cutthroat pricing and increased competition in the industry wasn’t helping matters. Meadowbrook had lost its A-minus rating from A.M. Best Co. — being graded down three notches to a B rating — along with significant capital and shareholder confidence.

Cubbin’s charge was not an easy one.

“The management team was cognizant of the fact that most financial institutions that have their A.M. Best rating downgraded as much as we did have a strong possibility of not being able to pull out of that downward spiral,” Cubbin says.

Meadowbrook had outdated controls and technology, a fragmented management structure and the organization lacked discipline. Cubbin, previously president and COO of Meadowbrook, put together a three-part plan to restore profitability and build a disciplined environment to make it all work.

Reshaping the company
Before Cubbin could redesign Meadowbrook’s management structure and before he could begin to think about raising capital or rescuing the company’s bruised A.M. Best rating, he had to get to the root of the problem and eliminate unprofitable lines of business.

“We had to exit those businesses that were deviations and get back to our core competencies,” he says.

Under Cubbin’s leadership, Meadowbrook bowed out of the surety bond and aggregate stop loss segments. Next on the agenda was to reshape the management structure. At the time, three presidents were running Meadowbrook’s businesses, which was confusing for employees.

“Adopting a more traditional management structure was a small part of our strategy but an important one,” Cubbin says.

He appointed a head of insurance operations to oversee Meadowbrook’s system of branch offices, at the same time delegating more responsibilities to branch managers. Branch managers are now responsible for proposing and assessing new insurance programs rather than relying on the corporate office to make all connections. This makes branch managers more accountable for a program’s success or failure, and encourages them to get out in the field and build closer relationships with clients.

As Cubbin redistributed accountability, he recruited personnel to carry Meadowbrook to the next level of profitability. Referrals and recruiting agencies introduced some new employees to Meadowbrook. Others came from traditional environments looking for a challenge.

“I looked for great people to fill management spots from other insurance operations that were downsizing,” Cubbin says.

Cubbin eliminated redundancies in the work force, reducing Meadowbrook’s staff from 749 employees in 1999 to 662 today. Automated processes and operational efficiencies lifted the demand for personnel in many administrative roles.

“We needed the infrastructure to support the level of business we were writing, but since that time, with efficiencies and technology investments, we have reduced the number of people we needed from five years ago,” Cubbin says. “We now have more of a concentration of knowledge-based decision-making roles as opposed to administrative functions.”

Changes in an organization almost always result in turnover.

“Some people were comfortable in the old structure, and they had to either get comfortable in the new one or look for a new culture that would fit their needs,” Cubbin says.

Most employees chose the former, embracing Meadowbrook’s move toward a traditional, more controlled environment. But Cubbin says that adjusting to the new management structure — a pyramid rather than a plateau — wasn’t easy.

“We hung in there and fought hard and communicated,” he says.

Specifically, Cubbin arranged regular conference calls with underwriting and claims staffs, and a more focused corporate communications department ensures that messages disseminated on the company’s intranet and to stockholders are consistent and accurate. Most of all, this team updates employees on Meadowbrook’s progress, sharing with them the same numbers he does with investors and the board.

“If everyone wasn’t pulling in the same direction, we weren’t going to be successful,” says Cubbin. “You can’t have everyone jumping ship — you could have mass exodus of your intellectual capital.”

Cubbin also tries to connect with employees personally.

“I maintain a fairly rigorous travel schedule,” he says. “I make sure I’m at every office at least once a year, talking to employees, giving them a chance to ask questions. I see our partners and clients, and they know if they have a question, they can pick up the phone.”

Skeptical buy-in gradually evolved into trust, which developed into company pride as Meadowbrook worked through its strategy. The result is what Cubbin calls a more disciplined culture.

“When we did return to profit, the team had bonded,” he says.

Gaining control
Part of Cubbin’s turnaround plan was to bring claims and underwriting managers in-house to ensure better service.

“We were allowing outside parties to be involved in risk selection of some of our insurance programs, and we had outsourced our claims (services),” he says.

Outside contractors now hold less interest in the outcome.

“If you delegate the work to select which policyholders you will bring into a program to an agent, their motivation is to produce commission income,” Cubbin says.

Hiring an underwriting team and appointing a manager is a safer, more controlled way to do business. Same goes for claims.

“They can work hard, but they are not your people and they don’t treat every dollar like their own,” Cubbin says.

Because Meadowbrook’s outsourced claims representatives worked on different computer systems that weren’t connected to the company’s mainframe, Meadowbrook received information months late and could not react immediately to policyholders’ claims.

Cubbin wanted to tighten the gaps so time lapses and technology wouldn’t affect Meadowbrook’s ability to respond. And in a business that sells products based on estimates and chooses customers based on risk, establishing controls is critical.

“You have to process claims in a timely fashion,” he says. “That is the promise you make to policyholders. To live up to that, you have to make sure your claims department is actively managing claims in an appropriate way.”

This means monitoring changes in claims results, reporting progress to policyholders and estimating how much losses will cost the company. Technology was instrumental for improving claims efficiency at Meadowbrook. Now, rather than processing claims by hand and over the telephone, an automated system removes some human error from the process.

On the workers’ compensation side of the business, a new Internet-based rate, quote and issue system allows agents to feed underwriting data into the Meadowbrook computer system.

“They enter in the application, and the system is designed so if there is an error or the form is not completed, the application kicks back to the agent to correct it,” Cubbin says.

Sounds simple, but this feature saves Meadowbrook waiting time and removes back-and-forth faxes and phone calls from the application process.

“If an application fits, it is rated, quoted and the agent is given permission over the Internet to issue that policy,” Cubbin says, helping to ensure a risk-free, error-free interaction between the agent and the company.

“We’ve created a more efficient environment, which reduces the number of administrative expenses you have and allows the professionals on staff to spend more time using their brains as opposed to fixing errors in data,” he says.

Rebuilding the balance sheet
Meadowbrook needed to dramatically improve its balance sheet by raising capital to fund growth and boost that A.M. Best rating from the B back up to an A-minus by paying down debt.

Capital was vital to lift the debt burden and was also needed to increase equity to support growth.

Cubbin, who was still COO when this process started, and the executive team approached a number of investment houses, asking them to help analyze strategic alternatives. Feedback ranged from selling the company to selling parts of it.

On Sept. 10, 2001, Meadowbrook mailed out a proposal to 50 investors. The next day, few paid attention to the mail.

“It was a tragic day for our country and the industry,” Cubbin says.

The company got no response, and management decided to go a different route.

By January, 2002, Meadowbrook had partnered with an investment banking firm to raise money publicly.

“We worked with that firm and talked to a number of institutional investors about how we turned the company around, how we were restructuring for the future,” Cubbin says. “We showed them the actions we took so this wouldn’t happen again — the past is behind us.”

It worked. In June 2002, Meadowbrook recapitalized, paid down $20 million in bank debt and contributed $37.5 million to strengthen its insurance operations.

Meadowbrook’s rating has improved to B++, considered very good, but Cubbin says the team is working diligently to achieve A-minus status again, which is considered excellent.

“That is an important benchmark for us,” Cubbin says.

The company’s A.M. Best rating isn’t the only thing that has improved. Meadowbrook was ranked No. 19 on Business Insurance magazine’s 2005 list of the 100 largest brokers of U.S. business. The company has posted a 15 percent compounded annual growth rate, pushing revenue from $198 million in 2002 to $304 million last year, and its stock price has rebounded into the $8 range.

Today, thanks to Cubbin’s turnaround efforts, Meadowbrook is stronger, more efficient and almost back to its best.

“There is a great deal of satisfaction and commitment to not return to the old days, where there was a lack of discipline,” Cubbin says. “People embrace that culture of control because they see that it is much more fun and exciting to be in a growing, profitable business than to be in one that is struggling.”

Cubbin shares this from an office in Meadowbrook’s brand new facility in Southfield, a visible landmark off the interstate. The building is symbolic of the company’s new beginning.

“It’s a punctuation mark on the turnaround,” Cubbin says.

How to reach: Meadowbrook Insurance, (800) 482-2726 or

Monday, 22 May 2006 20:00

Coming of age

Marvin Mashner, president and CEO of ACTS Retirement-Life Communities, faces little guesswork when determining whether his $263-million business should grow.

The numbers say it all.

Mashner has five years worth of people ages 70 and older waiting to move in to ACTS’ 18 continuing care retirement communities, eight in Greater Philadelphia, the rest in Florida, Georgia and the Carolinas.

“Our occupancy levels over the last three to five years are the highest they’ve been in history,” says Mashner. “We have sustained occupancy above 95 percent.”

When units that are sold but not yet occupied are taken into account, less than 2 percent of his inventory is available for sale.

“We can look at that and say, ‘Good,’” Mashner says. “‘If we have this many people interested, we should look for more land and develop more communities nearby. There is pent-up demand for our product.”

But growing in the business of retirement communities isn’t that easy. Existing facilities must be modified to meet changing market demands, and new construction is a lengthy process subject to the whims of local zoning and planning boards. Finding enough good people to deliver top service is an ongoing challenge, and as the population ages, more competitors are entering the market.

Mashner’s job is to respond to these trends. By meeting the needs of his existing residents, he can help guarantee a reputation that leads to referrals for more business. To meet those needs, he has to provide modern amenities and a skilled and caring staff, all while carefully expanding the company’s footprint to meet increasing demands.

“This is a business,” he says. “We have a responsibility to our existing residents — they made an investment in us, and we have to fulfill that.”

Reacting to change
ACTS, based in West Point, is the largest not-for-profit builder, owner and manager of its kind in the United States. Its marketing materials highlight 18 communities with resort-like settings, where residents enjoy a choice of dining venues, fitness centers, a pool and spas.

Few people today are interested in the basic care that satisfied their parents. This format change is in response to the changing attitudes of people moving in and is how ACTS competes with seniors’ multiple options for care.

“While the baby boomers are not in full effect, they are involved in the decisions for their parents,” Mashner says. “As a result, they have certain outlooks and expectations. They want more choice. Their parents were content with a standard program, and they were grateful for that. Individuals coming in today want more options, more flexibility.”

ACTS turns to generation industry studies as it shapes new facilities and updates existing communities. Coupled with annual satisfaction surveys it distributes to residents and people on its waiting lists, it determines what needs are not being met in its facilities. For example, Mashner learned that residents prefer to choose among a casual eatery, gourmet restaurant and snack bar venue for meals rather than eat in a grand dining hall.

“We try to make our centers less institutional,” Mashner says.

As part of that, ACTS seeks property in both rural settings and suburban neighborhoods.

“We recognize individuals have different preferences,” Mashner says. “It’s like whether you want a Ford, Chevy or Volkswagen. They all have four wheels, but the differences are what features people find attractive.”

Mashner describes the organization’s growth strategy thus far as a game of leapfrog: It built communities where it already has footprints, filling in suburban properties around the metro area.

“If we have several operations in a certain area, it’s beneficial to build nearby where we can use existing operations as a reference and support,” Mashner says.

In Philadelphia, ACTS’ reputation secures the company’s market share.

“Having been here for almost 35 years, we have significant name recognition, and those who know our name have a positive impression of us,” Mashner says. “So we build on that.”

Traditionally, the company’s growth has been through new construction. ACTS has built 16 communities in the last 35 years and acquired two facilities, one in Florida and one in Rock Hill, S.C.

Considering the resistance from anti-development groups ACTS experiences when laying out plans for new facilities, acquisitions are a more efficient way to grow, Mashner says. Acquisitions present opportunities to enter new markets without wrestling with real estate and new construction issues. By assuming ownership of existing facilities, ACTS can open its doors much faster, in a little more than a year. But any acquisition has to be a good fit.

ACTS acquired its Florida property was after making sure it had amenities comparable to other ACTS facilities. This was especially important as ACTS has continued to update and enhance its services to stay ahead of the curve. Acquiring a subpar facility would be counterproductive, which is why it has historically expanded only through new construction.

“The nice part about building from the ground up is the whole product is what you want it to be,” Mashner says. “An acquisition can have facets that you wouldn’t include if you were building it from scratch.”

One example is wellness and fitness facilities.

“In an acquisition, they may not have that in place,” Mashner says. “You have to determine, do they have the capability to support it.”

Mashner says ACTS will consider approaching acquisition candidates in its three key markets because acquisitions allow it to jumpstart growth.

“There are opportunities in the Philadelphia area, and we would be receptive to those,” he says. “What’s good about it is that operations are already up and running and blending into the existing corporation is easier.”

With acquisitions come employees. Human capital is the deciding factor in whether a facility will be acquired, and the people who work in the existing organization determine whether it will blend into the ACTS culture. After all, ACTS is in the people business, and in any business, people matter most, Mashner says.

“We look at the employees as part of the overall decision and the due diligence process,” he says.

Acquiring a facility with a talented staff removes the pressure of finding qualified workers in an industry where labor is scarce.

Labor challenges
Because much of what ACTS provides is based on service, it’s critical that Mashner has a staff at each facility that is qualified and capable of delivering a great overall experience.

“In heath care, there are concerns over the limited number of talent,” Mashner says. “Over the past couple of years, the number of nurses coming into the industry has continued to decrease, and the need for nurses is growing. There is competition for trained and skilled staff, especially in retirement housing.”

Meanwhile, many of the people who reply to ACTS’ help-wanted ads are foreign-born. Of its 5,800 employees, 35 percent are immigrants, largely from places such as the Caribbean and Mexico. That can pose language difficulties, Mashner says, so English courses supplement job training, and supervisors brush up on Spanish. ACTS offers programs for both camps.

“We even have residents in our communities who are participating,” he says.

Because competition for skilled nurses is so great, ACTS’ retention efforts center on career development so it can continue to provide opportunities for its employees to grow within the organization. More than 2,000 employees participate in 66 programs at ACTS’ Corporate University each year, including certification courses for college credit, three-year chef programs and management degree programs.

Additionally, supervisors and professionals teach programs on topics such as preventing resident abuse. Online training programs allow employees to log on in kiosks at work, access programs and participate in the courses.

“We also set up a leadership academy that focuses on developing supervisors,” he says.

The retention efforts have paid off. Four years ago, the company had a 39 percent turnover rate.

“This past year, our turnover rate hovered around 20 percent, and our target is 15 percent,” Mashner says. “We already have six communities who were at 15 percent at the end of the year.”

Mashner recognizes ACTS’ mission is to serve its residents, whether the organization must change, grow or adopt new services to do so.

“This is a business that affects the lives of people,” he says. “That is really what we are doing — providing a need and responding to individuals.” How to reach: (215) 661-8330 or

Monday, 15 May 2006 20:00

An asset-based alternative

Asset-based loans are one of many working capital financial tools available to business owners — and they aren’t just for companies “in trouble.” This might surprise executives of the old guard, who tag the asset-based structure as a Band-Aid for unprofitable companies.

“Some business owners will still think of asset-based loans and lending for the guy that doesn’t have enough equity in his company and doesn’t have enough money,” says Everett Orrick, Orange Country regional manager for Comerica Bank.

Traditionally, asset-based loans have been a fit for business owners in promising turnaround situations, as well as manufacturing operations in growth mode. But these loans can also build in much-needed checks and balances — not to mention some elbowroom when negotiating with the bank. You could eliminate a personal guarantee, secure more credit or even get better pricing on an asset-backed loan as opposed to a traditional line of credit.

Describe how asset-based loans work.
Asset-based loans allow businesses to secure a working capital line of credit with an advanced rate based on assets, including accounts receivables and inventory. For example, if you are a distributor of paper supplies and the bank gives you a $10 million credit line, it will lend you only 80 percent of your accounts receivables on any given day, and 60 percent based on your inventory. You produce a borrowing base certificate for the bank on a daily, weekly or monthly basis, depending on your credit risk. This form lists a number of variables, including accounts receivable and inventory levels. Based on that information, the bank will determine how much it will lend to that business on a given day.

Why are these loans valuable for rapidly growing businesses?
Asset-based loans can help growing companies close the gap between paying vendors to get supplies and collecting accounts receivables from customers. This is especially helpful for those rapidly growing companies in the manufacturing and distribution sectors.

Let’s say the company has high equity and a healthy balance sheet. The company is growing, and every dollar in sales the company adds requires additional working capital. In other words, when that paper supplier takes another order from a customer, it has to pay a vendor to get the supplies so it can fulfill that order. It pays the supplier long before it collects from the customer.

Usually, vendors must be paid immediately or at least within 30 days. Customers probably pay between 60 and 90 days — maybe 30 days if they really rely on your services. With an average 60 days on receivables, that means the company gets paid one month after it pays its suppliers. The more a company sells, the larger the gap between payables and receivables. Asset-based loans can help companies bridge that gap so they can continue to grow and stabilize their cash flow.

Who else is an ideal candidate for an asset-backed loan?
Many businesses benefit from the tighter controls banks enforce when they extend asset-based loans. For example, if you are busy on the sales and marketing side of your business and you want to have more checks and balances on how your financial team manages your assets and liabilities, this type of loan is that check and balance. Your bank won’t lend you more than 80 percent on receivables and an agreed-upon percent on your inventory. That is a control. If your inventory grows too rapidly, the bank will say, ‘You are over-advanced. How will you fix it?’

Also, business owners who overlook asset-based loans miss out on an opportunity to eliminate one thing most everyone dislikes: the personal guarantee on the debt they owe the bank. In return for giving the bank more comfort (because asset-based loans allow them more control and less risk), a lender may consider trading an asset-based structure for that personal guarantee. Or a lender may give you a larger line, but only if you elect an asset-based structure.

What is the difference between an asset-based loan from a bank and a similar arrangement with a factor or finance company?
Those companies really only lend to very highly leveraged businesses or turnaround companies, and they use this asset-based tool. But some finance companies tend to have higher rates and waiver fees. It’s really important not to confuse asset-based loans from banks and finance companies. Banks can provide a similar structure as the finance companies, but the rates and fees are negotiable because banks place high value on the customer relationship.

Many business owners do not realize their banks offer asset-based loans — and many smaller, regional banks don’t have the back-shop support to adequately monitor this structure. Larger financial institutions with a national reach often can support and offer asset-based loans to their customers.

EVERETT ORRICK is Orange Country regional manager for Comerica Bank. Reach him at (714) 435-3900 or