Jayne Gest

In today’s litigious society, people are filing more lawsuits and receiving larger judgments. Everyone needs to consider buying umbrella or excess liability insurance to protect their current and future assets against catastrophic loss.

“It is a financially sound idea for everybody to consider it, regardless of personal asset holdings,” says Erin Powers, CIC, assistant vice president at Momentous Insurance Brokerage, Inc. “The worst feeling is finding out at claim time that you could have had more protection if you had spent the extra few hundred dollars on an umbrella policy.”

Smart Business spoke with Powers about how to protect yourself with a personal umbrella policy.

Who needs to buy umbrella insurance?

Anyone with auto, homeowners or any other type of liability policy should consider umbrella insurance. We’re all exposed to claims and lawsuits that could jeopardize our current and future assets. An umbrella policy can protect against catastrophic (multi-million dollar) liability settlements.

Let’s say your dog bites a surgeon’s hand so severely he can no longer perform his job. Not only will the liability coverage pay for his medical costs, but it will also pay for his loss of wages. An umbrella policy will respond if your 16-year-old daughter crashes into a school bus, injuring or killing children, or if you injure someone with a golf ball. Another benefit of most umbrella policies is that there is coverage for legal defense costs outside of the excess liability limit.

Most auto and home carriers write no more than $500,000 or $1 million liability limits. An umbrella policy provides an additional layer of liability protection. Policy limits begin at $1 million and may be increased in increments of $1 million.

Is an umbrella the same as excess liability?

Umbrella and excess both provide additional coverage in excess of primary, but a true umbrella picks up exposures from the first dollar when no underlying insurance exists. Excess liability simply provides additional liability limits; coverage is not broadened. Many policies are called umbrella, but the contract wording says otherwise. Take time to understand what you’re buying.

What policy nuances are important to know?

The umbrella carrier will require you to maintain certain primary limits before triggering coverage. You’ll also want defense coverage to be outside of the limit of insurance, so defense costs won’t erode your limit. In addition, make sure you have worldwide coverage — some policies restrict coverage to the U.S. Family trusts or LLCs that own any tangible assets covered on the primary policies need to be included on the umbrella policy as the trust and/or LLC can be brought into the lawsuit.

Personal injury is also an important component to include. It covers things beyond bodily injuries, such as defamation of character, libel, slander, false arrest, wrongful eviction and violation of the right of privacy. With social media, everybody is putting opinions in writing. It’s an important exposure to cover, although some policies are starting to restrict Internet coverage.

What endorsements can help enhance your umbrella?

Typically, if there’s a claim, the insurance company will provide an attorney. A shadow defense provides an extra limit to bring on your own attorney to consult.

Some umbrellas include, by endorsement, employment practices liability, which protects you if a domestic employee sues for discrimination, sexual harassment or wrongful termination.

Another enhancement to consider is uninsured motorist coverage. A few companies can also include uninsured personal liability. With these coverages, you get the benefit of having your medical expenses paid, if the person who causes injury has inadequate or no liability coverage.

How do you know how much to buy?

Certain people are more at risk. Assess your lifestyle and re-evaluate with life changes. What kinds of things do you have, and what could potentially happen? Do you have parties at your house? Are you in the public eye? Do you have kids who are driving? Do you have a swimming pool?

Determining the proper limit is not an exact science. You can’t measure liability loss like a property loss. You want enough coverage to protect your assets, and maybe a little extra for peace of mind.

Erin Powers, CIC, is assistant vice president at Momentous Insurance Brokerage, Inc. Reach her at (818) 933-2791 or epowers@mmibi.com.

Insights Business Insurance is brought to you by Momentous Insurance Brokerage, Inc.

 

Accounting is the language of business. People use it to make decisions about the past and devise a plan to carry them forward. With the continuing emergence of fair value reporting on financial instruments, accounting no longer just looks back at what you paid, it values those assets today.

“Say you’re putting money into your 401(k). What if you didn’t know the current values? How do you evaluate your prior investment selections and how to move forward?” says Bryan Cartwright, financial services assurance partner at Moss Adams LLP.

“Likewise, if you’re on a company’s board of directors and you have no idea how much management is awarding in stock options because the options have no assigned value, it makes it hard to be an effective board member.”

Smart Business spoke with Cartwright about the increased requirements for fair value reporting.

How has fair value reporting intensified?

Privately-held and thinly-traded securities often have no observable market activity to provide current value information. Loans, bonds, companies, or preferred or common stock are, in increasing measure, being reported at fair value.

The Financial Accounting Standards Board (FASB) and the Securities Exchange Commission (SEC) continue to drive accounting standards and requirements toward the use of fair value, rather than cost, as the basis of value for financial assets. They have gone from requiring companies to disclose fair value in the back of financial statements to including them in the statements with strong support from financial statement users.

The latest push is for companies to disclose the way they’ve ‘fair-valued’ the information for each class of security or asset, and the significant inputs or variables upon which the fair values hinge. For example, instead of simply reporting that a loan has a fair value of $1 million, the disclosures are providing supporting information about the ‘unobservable inputs’ used by management to determine that value, such as a discounted cash flow technique or an unobservable input for the discount rate such as ‘Libor plus 500 basis points.’

Does this just apply to public companies?

It applies to any company or organization reporting fair values for assets or liabilities on a recurring basis, including public and private commercial enterprises, or anyone with financial assets or liabilities on their balance sheets reported at fair value on a recurring basis.

The pressure for accuracy is mounting from the top down. The SEC has been taking action against board of directors and management that it feels haven’t taken fair reporting requirements seriously, or have shown indications of intentionally misstating values. This has been particularly true in investment management, where the SEC has jurisdiction over registered financial advisers. It has been looking into the policies and procedures used by these advisers when setting values for private-equity and other securities, which play so big a role in investment strategies used by pension and profit sharing fiduciaries.

What advantage does more fair value bring?

Regulatory authorities want fair valuations to be accurate, supportable, and based on market information when available. With better information, whether modeled (unobservable inputs) or market-based, people are more accountable for assets they use and deploy.

For example, in 2005, after nearly 10 years of delay, the value of employee stock options began to be recognized in income statements. Executives, board members and shareholders gained much better visibility into the real cost of this compensation, which heightened the understanding of their use. It’s widely believed that the migration to more balanced compensation packages emphasizing both short-term and long-term rewards were due in part to this change in accounting.

How should executives react to this trend?

Everybody can agree on what something costs, but not everyone always agrees on its fair value. Accordingly, you need to be ready to defend your approach. Companies are building systems to document how they select their chosen valuation techniques among alternatives. The work needs to incorporate validation concepts including using ‘look backs’ to determine if selected techniques and procedures are still appropriate. Based on feedback from the SEC and others, companies really need to focus on market-based information when selecting valuation techniques and determining valuation inputs — it’s becoming more of a science.

Whether fair values are determined with internal resources or outsourced, your company is ultimately responsible for the assigned values. Currently, it seems that regulators are showing higher thresholds for proving that the values you select are appropriate. You can acquire valuation models, but a model is only as good as its inputs. Someone in your organization must have the education and skill to understand valuation requirements and communicate your approach, even if you outsource the work.

Overall, fair value is improving financial reporting, although it’s certainly uncovering more differences of opinion and subjectivity than we are accustomed to dealing with. But as people begin to believe in the reliability of fair values, more decisions will be made based upon them, making them more important still.

Bryan Cartwright is a financial services assurance partner at Moss Adams LLP. Reach him at (415) 677-8331 or bryan.cartwright@mossadams.com.

Insights Accounting & Consulting is brought to you by Moss Adams LLP

As a central control position for financial assets, family offices manage investments and trusts by preparing tax returns, handling bill pay and/or overseeing financial controls.

Floyd Trouten, a director of tax at SS&G, says families that use these private companies typically have an excess of $10 million in investable assets. However, no family office is alike because they are very customizable and offer a high level of service.

“A well-run family office minimizes taxes and maximizes cash flow to family members. It maximizes the amount of wealth that can pass from one generation to another. It provides a control point where assets are housed, managed and invested,” he says. “But the biggest thing is you can sleep well at night, knowing things are under control.”

Smart Business spoke with Trouten about how family offices work and why this might make sense for your family.

Why are family offices so different?

Each family has specific needs. Some may already have a third-party investment group that manages the money, so family members don’t care about investment advice if they are getting tax returns prepared. Other family offices include estate and tax consulting to maximize benefits to beneficiaries and minimize potential taxes.

With another type, the family may ask the financial advisers to be trustees. As the trustee of a family trust, the office may do bill pay and investment review. For example, if a granddaughter has an idea for an investment, it could be easier to have her bring it to the third party for review. The family office provides objective advice and lessens hurt feelings.

As another example, if a family member wants to buy into operating companies as a member of the board of directors, under the family office, the financial adviser might be asked: ‘Is this a good company to buy?’

In what areas do families with concentrated wealth typically fall short?

Some potential problems are having:

  • No financial controls on what different family members can spend.
  • Too much money not invested, and not earning anything.
  • Investments so far spread out that you really don’t know what you have.

Another area to watch is bill pay. If a family member has the tendency to give to every charity that sends a request, the family office can provide guidance to the member regarding legitimate charities and charitable goals.

Many family assets may be flow-through entities — partnerships, trusts, LLCs or S corporations, which are taxed on an individual’s return. Family offices can help ensure there’s money for the appropriate tax payments as family members may have filing requirements in multiple states, as well as the U.S. and foreign countries.

What are some other ways families can utilize accountants through a family office?

If a patriarch or matriarch has sold a company for $100 million, for example, and wants to leave money for grandchildren and children, family office advisers can help ensure inheritances are fair and reasonable. It’s important to remember that fair doesn’t necessarily mean equal. Giving more to one child than another can create difficulties, but it may be for good reason, such as health, martial circumstances, etc. Combined legal and financial counsel can help you come to sound decisions.

In addition, you must take asset protection into account. If a beneficiary receives assets outright, he or she could have those threatened in a lawsuit, divorce or bankruptcy. A family office trust, administrated by a family member trustee and a third-party trust protector, safeguards assets from being awarded to another in a legal settlement.

Each family member’s individual needs can be so diverse that it may make sense to have separate trusts for each family member, which could be more easily administered from a central point. This scenario minimizes family disputes and provides individual privacy.

There are $46 trillion in assets housed in family offices today. If your family has complex tax return and financial scenarios, then it’s worth exploring whether you fit into this space. Find out more at the Family Office Association by visiting www.familyofficeassociation.com.

Floyd Trouten is a director of tax at SS&G. Reach him at (440) 248-8787 or FTrouten@SSandG.com.

Insights Accounting & Consulting is brought to you by SS&G

 

Small Business Administration (SBA) financing has been around for a long time, but these loans are available to more business owners than ever due to recent program enhancements.

Your banker should be able to take you through the programs and eligibility requirements to see if an SBA loan fits your needs, says Tim Dixon, SBA program manager and senior vice president at FirstMerit Bank. And if you work with a preferred lender who has the authority to make decisions on behalf of the SBA, the SBA lending process can be straightforward.

“We do the heavy lifting for the client and try to make the SBA loan process look very much like any conventional business loan,” Dixon says.

Smart Business spoke with Dixon about SBA lending changes.

What traditionally has been covered by SBA lending?

The core SBA 7(a) lending programs can help when your company:

  • Has been in business for a short time.
  • Is tight on collateral or is leveraged.
  • Has some particular industry risk.
  • Cannot meet standard down payments.
  • Needs extended amortization to better fit with cash flow.

The two main SBA loan programs are 7(a) and 504, which is done with an area Certified Development Company. The 7(a) loans have a broad range of eligible uses and can serve a variety of purposes — real estate, equipment, working capital, refinancing debt, financing a change in ownership, etc.

The 504 program, which typically has slightly larger loan amounts, focuses on economic development and expansion, and the job retention and creation that come along with it. There are just a handful of eligible purposes, such as real estate purchase and expansion, or purchasing heavy equipment that has a useful life of at least 10 years. And certain types of projects may be eligible for special consideration, including energy efficient projects or projects located in targeted economic development areas.

What SBA program changes are enabling more companies to receive larger loans?

Several years ago, the SBA expanded its role by increasing the size of loans that can be extended. The maximum aggregate exposure of SBA-guaranteed loans for standard SBA programs is $5 million. However, under the 504 loan program, you can go even higher in terms of total project amount. Say you’re buying real estate or doing a significant expansion, your total project could be as high as $12 million when you leverage all your dollars together. The bank could do a first mortgage loan, and the SBA would do a second mortgage financing with a long-term fixed rate, while the borrower puts some equity into the project.

At the same time, the SBA increased the size of businesses that can qualify for lending. What might have been considered a midsize company now qualifies for these ‘small business’ loans.

Another change became effective Oct. 1. The SBA authorized a waiver of the SBA guarantee fee on 7(a) loans of $150,000 or less. The waiver is very broad, just based on the loan’s dollar size. It can be used for any number of purposes, such as working capital, equipment, refinancing, etc. It’s really targeted at benefitting traditional small business owners at those loan amounts — helping grow Main Street. It runs through this fiscal year, or until Sept. 30, 2014.

What has been the impact of these enhancements on lending?

Some of the changes have been in place for a few years, and have really had an impact on increasing the number of loans.

In addition, the SBA has been busy since some of its major program changes, providing continued enhancements. The SBA is always looking at the underlying eligibility requirements to try to provide simplicity for banks and businesses.

Have any SBA loan programs been reduced?

Yes. There was a temporary program that expired Sept. 30, 2012. It allowed banks to use the 504 program to refinance eligible projects and debt. It locked in a good portion of the deal at low 10- or 20-year fixed-rate financing. The banking industry has been lobbying to have that program resurrected again. The program might return later this year or in 2014.

Tim Dixon is SBA program manager and senior vice president at FirstMerit Bank. Reach him at (216) 514-5431 or timothy.dixon@firstmerit.com.

All opinions expressed herein are those of the authors/sources and do not necessarily reflect the views of FirstMerit Corporation.

Insights Banking & Finance is brought to you by FirstMerit Bank

 

 

Not all high net worth individuals started out that way; they’ve spent years building a business and career, slowly accumulating assets and wealth. Even though they have more items to insure and face different risks, they often don’t adjust their personal insurance to reflect their changing needs.

“They are so busy building a business, they often don’t take the time to adjust their coverage as their needs and circumstances have changed,” says Kevin Franczkowski, a client advisor at SeibertKeck Insurance Agency, Inc.

Most of these people would never go without necessary coverages on their business, but there can be major inadequacies with their personal insurance, he says.

Smart Business spoke with Franczkowski about where high net worth individuals need more or different types of insurance coverage.

What is the biggest area that high net worth individuals underinsure?

The biggest concern is liability. While it is upsetting to lose an expensive piece of jewelry, it generally will not ruin someone financially; a liability claim, however, can. With inadequate liability and/or umbrella coverage, one incident can affect the total wealth and earnings of an individual and their family.

If the individual sits on non-profit boards, or is involved with charity work, he or she needs to consider increasing his or her limits and supplementing coverage with an umbrella policy. If a non-profit is sued, it is common to name all the individual board members in the suit as well. Without the proper coverage, you could be footing the defense or judgment bill yourself.

For example: A high net worth individual sat on a youth athletic league’s board of directors, and a former coach sued all board members for improper dismissal. Thankfully he had a personal umbrella policy that covered him for liability resulting from unpaid or voluntary positions and paid for his entire defense.

Auto accidents are a common source of claims and can result in financial pain if you and your estate are not adequately covered. For example: An individual has a $1 million umbrella policy over a $250,000 per person liability limit with his automobile policy. Unfortunately, he or she had an accident in which a child was severely injured. The child’s care will more than likely exceed $5 million within 15 years; his or her estate, business, and earnings will all be at risk to cover this situation.

What problems do you see with homeowner’s policies?

Homeowners policies come with limitations on certain items like fur, jewelry, fine arts and firearms. These provided limits are not usually adequate for high net worth individuals. As individuals gather wealth, they tend to gather expensive items that with a standard policy have a very limited amount of coverage. It is important to review these items with your insurance agent to be sure the items are properly and fully covered. Collectibles and rare or unique items often require a separate policy, known as an Inland Marine Policy.

Making sure the values on your homeowner’s policy are correct, and ensuring you use insurance products that are designed for higher risk, will be extremely important in the event of a claim.

How should household help be covered?

If household help, such as a gardener, nanny, cleaner etc., doesn’t come from an established company, you need to pay workers’ compensation. This will protect you in case they are injured in your home. If the employee comes through a service company, ask for proof of coverage with a workers’ compensation certificate. It is also important to inquire with the company about background checks for anyone coming to work in your home to make sure there’s compatibility, experience and no other issues. Your insurance agent can assist you with determining if the company’s coverage will extend to the employee, or if you need to purchase your own policy for them.

A good agent will do a risk management audit, asking what you’ve got to protect and walking you through the different items you have to ensure there’s adequate coverage. By spending time with a qualified high net worth agent, you’ll know your assets and income are properly insured.


Kevin Franczkowski is a client advisor at SeibertKeck Insurance Agency, Inc. Reach him at (330) 867-3140 or franke@seibertkeck.com.

Insights Business Insurance is brought to you by SeibertKeck

Not all high net worth individuals started out that way; they’ve spent years building a business and career, slowly accumulating assets and wealth. Even though they have more items to insure and face different risks, they often don’t adjust their personal insurance to reflect their changing needs.

“They are so busy building a business, they often don’t take the time to adjust their coverage as their needs and circumstances have changed,” says Marc McTeague, president at SeibertKeck.

Most of these people would never go without necessary coverages on their business, but there can be major inadequacies with their personal insurance, he says.

Smart Business spoke with McTeague about where high net worth individuals need more or different types of insurance coverage.

What is the biggest area that high net worth individuals underinsure?

The biggest concern is liability. While it is upsetting to lose an expensive piece of jewelry, it generally will not ruin someone financially; a liability claim, however, can. With inadequate liability and/or umbrella coverage, one incident can affect the total wealth and earnings of an individual and their family.

If the individual sits on non-profit boards, or is involved with charity work, he or she needs to consider increasing his or her limits and supplementing coverage with an umbrella policy. If a non-profit is sued, it is common to name all the individual board members in the suit as well. Without the proper coverage, you could be footing the defense or judgment bill yourself.

For example: A high net worth individual sat on a youth athletic league’s board of directors, and a former coach sued all board members for improper dismissal. Thankfully he had a personal umbrella policy that covered him for liability resulting from unpaid or voluntary positions and paid for his entire defense.

Auto accidents are a common source of claims and can result in financial pain if you and your estate are not adequately covered. For example: An individual has a $1 million umbrella policy over a $250,000 per person liability limit with his automobile policy. Unfortunately, he or she had an accident in which a child was severely injured. The child’s care will more than likely exceed $5 million within 15 years; his or her estate, business and earnings will all be at risk to cover this situation.

What problems do you see with homeowner’s policies?

Homeowners policies come with limitations on certain items like fur, jewelry, fine arts and firearms. These provided limits are not usually adequate for high net worth individuals. As individuals gather wealth, they tend to gather expensive items that with a standard policy have a very limited amount of coverage. It is important to review these items with your insurance agent to be sure the items are properly and fully covered. Collectibles and rare or unique items often require a separate policy, known as an Inland Marine Policy.

Making sure the values on your homeowner’s policy are correct, and ensuring you use insurance products that are designed for higher risk, will be extremely important in the event of a claim.

How should household help be covered?

If household help, such as a gardener, nanny, cleaner etc., doesn’t come from an established company, you need to pay workers’ compensation. This will protect you in case they are injured in your home. If the employee comes through a service company, ask for proof of coverage with a workers’ compensation certificate. It is also important to inquire with the company about background checks for anyone coming to work in your home to make sure there’s compatibility, experience and no other issues. Your insurance agent will be able to assist you with determining if the company’s coverage will extend to the employee, or if you need to purchase your own policy for them.

A good agent will do a risk management audit, asking what you’ve got to protect and walking you through the different items you have to ensure there’s adequate coverage. By spending time with a qualified high net worth agent, you’ll know your assets and income are properly insured.

Marc McTeague is president of SeibertKeck, Best Hoovler McTeague. Reach him at (614) 246-7475 or mmcteague@seibertkeck.com.

Insights Business Insurance is brought to you by SeibertKeck

Regulatory audits of retirement plans are on the rise — in number and scope — from both the Department of Labor (DOL) and the IRS.

“The DOL has hired hundreds of plan auditors and they are actively looking for violations. Trivial issues, or issues often overlooked in the past, are now being scrutinized during a regulatory audit,” says Mike Spickard, CEO and Chief Actuary at Tegrit Group. “The IRS or DOL will always find something during an audit; often, there are penalties, interest and some pain involved.”

Smart Business spoke with Spickard about avoiding regulatory audits, and what to do if that’s not possible.

Why has there been an uptick?

From the DOL’s perspective, the No. 1 trigger of a regulatory audit is a pattern of participant complaints. Additionally, the IRS and DOL have started to communicate with each other more frequently in the past four or five years. So, if the IRS tags you for an audit and auditors see problems within the DOL’s jurisdiction, you could be dealing with two audits.

How can plan sponsors avoid audits?

To prevent an audit, be an engaged plan sponsor. Know what’s going on with your plan and manage it as part of your corporate operations. Though a plan sponsor’s primary responsibility is running his or her business, it must be recognized that a retirement plan is both an asset and a liability, and needs to be managed as such.

Your plan must be amended if the law or your company changes. Everything needs to be up to date, and the plan administered pursuant to the terms of its document. At a minimum, have an annual review with all service providers, your recordkeeper, third-party administrator (TPA), financial advisors, etc., to ensure everyone is on the same page.

Further, it’s important to stay in tune with your employees. This enables you to deal with plan issues, real or perceived, before participants call the DOL.

What triggers a regulatory audit?

The IRS does not disclose how it selects plans for audits. Audits are partly random, but certain activities may raise flags, such as a late Form 5500 or negative publicity surrounding a troubled company. Certain Form 5500 responses also may trigger an audit. For example, one question on the form is: Did the plan have a fidelity bond in place throughout the plan year? A fidelity bond is required; a ‘no’ may indicate you don’t know what you’re doing, causing a response from the IRS.

What should you do if tapped for an audit?

When you get the initial audit notice, let all your service providers know. Often one service provider, usually the TPA, takes the lead. But it’s easier to respond if records are organized and information is readily available. Disorganization causes auditors to linger, which ultimately costs more.

The DOL or the IRS gives the sponsor, and its advisors, time to gather plan documents, amendments, payroll records, contribution reports, record-keeping reports, etc. Screen all necessary information, as well as any additional information that could be required later. Only give auditors what they ask for.

After the initial review, auditors decide if they want to do a deeper dive on specific issues, or expand the audit to additional years. If your service providers compare notes and plan, you can at least stay in step with the auditor, if not one step ahead.

Afterward, how can business owners thrive?

Pay attention to the audit findings, not only addressing problems throughout the audit, but also indications of future problems.

If you successfully defend an issue, the fact that an auditor challenged it is an opportunity to seek a better solution. For example, it was discovered during an audit that one small business mailed checks to its recordkeeper, delaying the deposit into participant accounts while the check was in transit. This delay isn’t necessarily a violation, but a better alternative would be an automated clearinghouse or wire transfer. Even in successful audits there are opportunities for improvement.

Mike Spickard is CEO, Chief Actuary at Tegrit Group. Reach him at (330) 644-2044 or mike.spickard@tegritgroup.com.

Insights Retirement Planning Services is brought to you by Tegrit Group

Your property manager offers not only convenience, but also cost stabilization and a link to finding creative ways to save money without sacrificing quality of service.

“A qualified property manager should be able to distinguish the needs of both the tenants and landlord to protect the asset — whether it’s office, industrial, retail or multi-family,” says Eliot Kijewski, SIOR, senior vice president at CRESCO.

Another benefit of having a professional property manager is that he or she serves as a singular point of contact for both the tenant and landlord, which allows the property owner to invest his or her time elsewhere.

“Our property management philosophy is to think like an owner to maximize asset value,” says Judy L. Simon, CPM, assistant vice president at Continental Realty.

Smart Business spoke with Kijewski and Simon about how to best utilize property management.

What services does a property manager typically provide?

Traditionally, a property manager’s duties fall under the categories of building operations, financial management and tenant relations. He or she helps keep costs consistent, using his or her contacts to shop out needed services, whether it’s snow removal, landscaping or cleaning services, to get the best price per square foot. The manager uses those same contacts to reach out to contractors and have them bid for tenant improvement work.

At the same time, the manager is a liaison between the tenant and landlord. Many tenants decide to move because poorly managed building issues interfere with their daily operations. An experienced property manager stops potential issues from becoming large problems, which helps with tenant retention. The property manager may be working for the landlord, but he or she must maintain a good relationship with the tenants.

Property owners should have at least 50,000 square feet of space for property management to be cost-effective. Then, you can tailor the services you want your property manager to deliver.

Beyond hiring contractors and dealing with tenants, how else can the property manager assist?

A quality property manager will help maximize how your dollars are spent by providing cost savings without losing quality. For example, a manager can help you decide where, or if, you should offer an extra service or two to make the property more attractive to tenants, such as move-in assistance or security. The manager also can find savings through energy management or sustainability programs, which benefit both the landlord and tenants.

He or she can help establish contracts with vendors, whether that’s purchasing carpet, salt, landscaping material, etc., as well as assist with capital budgeting. For instance, beyond getting three quotes for a roof repair, the manager can help you decide if you want a total replacement, patching, or to replace different sections each year, in which case you can allocate funds for each stage of the project rather than write one large check.

Does a property manager have a role in lease negotiations?

Not really, although property managers can assist with lease administration and reporting. However, it’s important to remember if a property is not managed well, it drives off prospective tenants. If they pull into a parking lot full of chuckholes that hasn’t recently been seal coated or stripped, they will assume their space is going to get the same poor attention.

The saying goes: The first impression is the only impression you get. Your property manager helps with that first impression. The manager may not have a direct impact on pricing and lease negotiations, but many times the property manager will hear about expansion/renewal needs during routine tenant visits. Their experience with and understanding of the building will also help you during negotiations.

Eliot Kijewski, SIOR, is a senior vice president at CRESCO. Reach him at (216) 525-1487 or ekijewski@crescorealestate.com.

Judy L. Simon, CPM, is an assistant vice president at Continental Realty. Reach her at (216) 454-2546 or jsimon@continental-realty.com.

CRESCO and Continental Realty have joined to offer full-service property management in the Cleveland market

Insights Real Estate is brought to you by CRESCO

Networking is key to growth when it comes to business development. Women business owners, however,  face unique challenges, especially in a rapidly growing, male-dominated energy industry.

In a recent survey conducted by First Commonwealth Bank® and Campos Inc. of 125 local women-led businesses, more than 47 percent of respondents said business development was their greatest need.

“Based on this percentage, it shows that there is a significant opportunity for women to better understand how to network and successfully grow their businesses through these unique relationships,” says Megan A. White, Vice President and Regional Manager at First Commonwealth Bank.

Smart Business spoke with White about how women in business, particularly within the energy industry, can tackle business development.

What challenges do women face with developing their businesses?

In the same Campos survey, 67 percent of respondents said they seek business advice and guidance from peers and colleagues.

However, the challenge for many women is that they do not know who to network with for business advice beyond their peers and colleagues, and sometimes need help getting outside of their industry. When they expand to other industries, such as education, finance or government, it helps them build a solid network and creates many opportunities for developing their business.

How can women build networks that become their center of influence?

One way to create a networking system to benefit your business is to reach out to business professionals — your banker, attorney and accountant — who each have networks that you can plug into.

People often have tunnel vision, thinking a banker only does loans and deposits, but a good banker who wants to see your business grow and succeed can help with all your business needs, and connects you to community leaders or business owners.

A banker, along with the network of other professionals, can open doors, make introductions and be your strongest advocate.

With the energy industry’s growth, what’s important for women to understand about business development in this arena?

According to Rigzone, which provides oil and gas industry news and information, in the first quarter of this year, more women than men entered the oil and gas industry. Locally, many women operate in leadership positions within the manufacturing and service industries related to oil and gas. People may think of the energy industry as male-dominated, but it’s an avenue for women to build leadership roles and own companies within the industry.

Like many, when I first started to develop contacts within the energy industry, as a woman I thought there might be hurdles to overcome. However, in general, everybody within the industry is very welcoming, which helps you learn the network, and a lot of women already operate within the space.

Women shouldn’t hold back, assuming they may have a hard time, when they actually have a skewed perception of the industry. It’s also short-sighted to assume their company may not tie into the energy industry because they’re just thinking of the wells, pads and drilling. That’s not really looking at what the industry can do, or what your business can do for the industry.

Is there still a ‘boy’s club’ mentality in the energy industry?

Not as much. We do have a lot of room to grow, quite frankly, but there are women’s organizations that help with that. For example, the Women’s Energy Network, which was primarily Texas-oriented, formed an Appalachia chapter in 2011 that focuses on Pennsylvania, Ohio and West Virginia.

Women in the energy industry are being proactive. They want to get together to form a team and network within themselves, as well as being able to work together to become an industry force.

Business is still very much relationship driven. Yes, you need to have a competitive product and know what you’re doing in your industry. But in order to grow with other companies in your market area, it’s important to understand what each industry is doing and how you can work with others, or create something that makes your market stronger.

Megan A. White is a vice president and regional manager at First Commonwealth Bank. Reach her at (724) 836-6694 or mwhite@fcbanking.com.

Call (800) 711-BANK (2265) or visit fcbanking.com/womenfirst for resources specific to women in business, local events and more.

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A letter of intent, memorandum of understanding or term sheet — all essentially the same — is intended to be a nonbinding expression of the parties’ intended business transaction, creating a framework for putting a deal together.
It’s useful for a merger, acquisition or other combination, stock purchase, joint venture, real estate sale or lease, purchase or licensing agreement, or business contract.

Business owners usually aren’t in the business of doing deals, so it’s better to address the salient, material business points upfront in a simple, understandable way, says Peter J. Smith, a member at Semanoff Ormsby Greenberg & Torchia, LLC.

“The last thing you want is to go through an entire negotiation, do your due diligence, get your financing and then find out there’s an issue that becomes a deal killer,” he says. “You’ve now spent tens of thousands of dollars in time and expense on a deal that doesn’t, or won’t, close.”

Smart Business spoke with Smith about why using a letter of intent makes sense.

What is the purpose of a letter of intent?

It allows the parties to see if there is a basis for, and to document as a preliminary matter, the terms of a deal before expending time, energy and money. It’s better to determine if you can reach an agreement on the basic framework before you and your organization spend significant time, plus out-of-pocket expenses for attorneys, accountants, inspections, application fees, appraisals, travel and more.

The letter of intent also lays the groundwork for the transaction, including areas businesspeople don’t consider at first like non-competes, non-solicitations or indemnification. If it is sufficiently detailed and anticipates all major points, a letter of intent limits future negotiation, surprises and issues that could derail the deal, making the transaction more efficient and likely to close smoothly.

How detailed should a letter of intent be?

Unless there is a specific reason not to, a letter of intent should be as detailed as possible. The more you can include, the less there is to argue about later.

Sometimes business owners want a quick, one-page agreement that doesn’t get too hung up on the details. However, parties tend to be more agreeable and reasonable at the letter of intent stage. Plus, in my experience, the more detailed the letter of intent, the more likely the transaction is to close. Letters of intent also help minimize the ‘difficult lawyer’ problem, when counsel wants to continually negotiate the deal or make so many changes that the deal doesn’t come to fruition.

How can you negotiate important points if you have only done limited due diligence?

You can ask for the information upfront to resolve the issue, which is probably the best solution. If this is not practical, use a range or formula, or you can raise an issue, but leave the details for after due diligence.

What good is a letter of intent if it’s not binding?

Though not legally binding, a letter of intent has a psychological impact. It memorializes the understanding of the parties, and most people don’t want to be seen as breaking their commitments. Parties should sign a letter of intent, even if there are no binding provisions, solely for the emotional effect.

Nevertheless, a letter of intent often contains binding provisions such as confidentiality, no shop, non-solicitation of employees or customers, good faith negotiations or best efforts. It may provide a timeline for deposits, break-up fees or other provisions that become binding over time.

A letter of intent also can be provided to third parties to evidence the parties’ commitment and terms of the deal, perhaps in support of financing applications, approvals, etc.

In addition, you may not want to read a 30-page agreement, line-by-line, that is full of legalese. That’s why you pay a lawyer. With a letter of intent in place, counsel can say, ‘Yes, the agreement says the same thing as the letter of intent, and here are the five additional things you need to know.’ A detailed letter of intent helps you understand the deal better and results in a smoother, more cost-efficient transaction.

Peter J. Smith is a member at Semanoff Ormsby Greenberg & Torchia, LLC. Reach him at (215) 887-0200 or psmith@sogtlaw.com.

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