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Tuesday, 25 November 2008 19:00

Changing landscape

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As the health care industry continues to grow at an explosive rate, the federal government continues to add new regulations and change existing ones to keep up.

Many of the changes made by the government aren’t noticeable by the general public unless they directly affect the health care service received by patients. However, the government has enacted many of these regulations in an effort to prevent fraud and abuse in the health care system.

“I don’t believe that the public is aware of the complexity of these regulations and how they affect the business relationships between health care providers,” says Kathy Butler, manager of the Health Law Practice Group at Greensfelder, Hemker & Gale, P.C. “I think they hear on a broader scale of the government’s numbers about how many billions of dollars it is collecting from people erroneously billing or committing fraud.”

Smart Business spoke to Butler about how often regulations change and how they affect the health care industry.

Do regulations change a lot in the health care industry?

Yes, they do. The Centers for Medicare and Medicaid Services regulate all the different types of service providers. These services include hospitals, physicians, diagnostic testing facilities, medical device suppliers, etc. There are various times throughout the year, on a fairly constant basis, when changes are being made.

Typically, any changes made to the Medicare physician fee schedule come out in the summer and are finalized by Nov. 1; we just finished up this process for the year. There are also rules for hospitals that change every year related to the inpatient services and for outpatient services that come out at a different times. The government can publish regulation changes at any time it feels there is a need.

In the last couple of years, there have been significant and sometimes complex changes that have had a huge effect on physician-hospital relationships and medical provider business structures. It is a constant education and effort to keep up with all the changes.

Are these changes necessary to keep up with the ever-growing health care industry?

The government believes, and rightly so in some cases, that some providers are billing inappropriately or engaging in fraudulent activity at the government’s expense. It is a complicated system and there is a lot of money involved in delivering health care services. Although most providers try very hard to comply with all the rules, whenever you have complexity some people will try to defraud the system to make money.

For example, in South Florida, the government is dealing with providers of various types of services, such as infusion clinics and medical equipment, which are under scrutiny because some providers are billing for services they have not provided or that are not medically necessary. It’s a complicated regulatory scheme and people take advantage of it, so the government has created regulations in an effort to minimize fraud and abuse.

As a result, the government applies its regulations with a broad brush, and sometimes those regulations frustrate legitimate business activities that may actually be beneficial and create efficiencies for patients, the community and the industry.

Can you give an example?

One of the most recent changes involves a rule change that allows hospitals to contract with other entities to provide services that the hospital doesn’t have, and then bill for the services ‘under arrangement.’ The hospital bills as if the service was provided by it and then pays the entity that performed the service a fair market value rate. But, due to concerns about financial relationships between hospitals and physicians, a new regulation, due to go into effect in October 2009, will prohibit that type of arrangement between a hospital and any entity that has physician owners that refer to the entity.

The government is concerned that hospitals inappropriately allow physicians to benefit financially by contracting with physician-owned companies. A small hospital with limited resources that contracted for MRI services with a physician group that already had an MRI may have to spend money to buy its own MRI and duplicate a service that already exists in the community. The hospital will then have less money to spend on other services that may be needed in the community.

What is the Stark Law?

It is a federal strict liability law that prohibits a physician from making a referral to certain types of entities (including hospitals), and prevents the entity for billing for that referral, if the physician has a financial relationship with the entity, unless the relationship fits within a specific exception.

For example, if a hospital contracts with a physician for administrative services, that physician, if he or she also refers patients to the hospital, must have a written contract that meets very specific standards. Failure to meet each standard, even if it is inadvertent, could result in the providers having to return the payment for the services they provided, and other severe penalties.

KATHY BUTLER is manager of the Health Law Practice Group at Greensfelder, Hemker & Gale, P.C. Reach her at (314) 516-2661 or khb@greensfelder.com.

Tuesday, 25 November 2008 19:00

Refresher course

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After 34 years of operation, the Kennelwood brand was due for a change. Co-owner and Chief Marketing Officer Chris Danforth says that the company was founded as Kennelwood Village, and it had a “village mentality.” At the time, it was one store that did pet boarding and grooming, with some elements of retail. Now, the company, which has grown to 2007 revenue of $9.5 million, has changed its name to Kennelwood Pet Resorts to reflect its new concept: a vacation spot for pets, with plans to expand to new markets.

“We saw an opportunity to change our look and tie it all together,” he says.

Smart Business spoke with Danforth about how to plan a rebranding effort and how to expand without getting in over your head.

Q. What advice would you give a CEO who is considering rebranding?

As we’ve just begun the process and are learning about it, we have been conservative. We want to make sure we’re doing it right. We don’t want to rush in and grab into a market we’re not prepared to be in yet.

You have to do your due diligence and really understand that cities are becoming more and more like each other, but there certainly are some differences. Make sure you understand the differences in the marketplace. If it takes a little longer, that’s better than rushing into it and realizing you missed it or you’re in over your head.

Q. How do you decide where to expand?

The way we’re targeting is looking geographically and making sure there are households with a propensity to spend. We’ve also looked at competition. We know we can open up multiple locations in Chicago, Nashville or wherever, then break down the market and use our partners to research real estate.

That helps make sure we’re in the right areas. Get close proximity to the ZIP codes we want to hit. In St. Louis, we know what ZIP codes we want to hit, but we also know that we might not want to be right in that ZIP code. We could be a stone’s throw away and save some money on leasing or owning land.

We rely on the experts we’ve brought along the way to help us out. The real estate brokers, the construction management company, whatever.

Q. How did you get people on board with the new direction of the brand?

There are two elements to it. There is one in the consumer market, and one is the internal employees. They certainly have strong opinions, and when you’re trying to change something they identify with, it’s hard. It’s just as important to get them on board. So, we try to include them as much as we could on the decision-making process for logos.

For example, we had everyone come in and vote [on several different logos]. We tried to engage them as much as we could in the process.

Our concept has changed over the years. Now, moving forward with the franchise is sort of a resort theme. We wanted to tie everything together. The logo now is a dog in a beach chair.

All the posters and brochures tie heavily into the resort theme and borrow heavily from the travel agency look with destinations and really making the pet stay about them going on a vacation.

Also, we tried to have fun events at the store — not only for the customers but for the employees — to teach them about the history of the company but then introduce the new brand to them, as well. We inform them of the thought process, like why we chose that particular logo.

Communication is vital and has been something we have been trying to do as we implement change in our local market and certainly as we venture into franchising.

It’s been a challenge for us, just making sure the key people not only know what’s going on but why it’s going on, so they can buy in to the idea.

Q. How do you get buy-in on branding ideas from your employees?

I like to be fairly open with what we’re doing and bounce ideas off them. It’s the ideas that matter, and if people take ownership of them, if it’s presented in a certain way, they feel like they helped craft it.

It could just be as simple as floating out a top outline idea and having a sense of the direction you want it to lead, help drive that process but let other people fill in the blanks and let them feel like they are part of the decision-making.

Get employees involved through meetings. Present ideas and have them go back to other people and survey their staff, or just think about it for a while and then get back to people.

Just be honest and lay things on the table. When I’m explaining the direction or explaining a decision or explaining a new concept, I try to give as much background as possible. Try to be open and have dialogue back and forth.

HOW TO REACH: Kennelwood Pet Resorts, (314) 446-1000 or www.kennelwood.com

Sunday, 26 October 2008 20:00

Teamwork

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Tracy Hart is not one to hogall the credit for a job well done.

Instead, the co-owner, president and CEO of Tarlton Corp. isfirst in line to give credit wherecredit is due.

“It comes into play all thetime,” she says. “For instance,somebody will say to me, ‘Youdid a great job on XYZ project,’and the best thing I can do is tosay, ‘We had a very talentedteam on that job.’ It certainlyisn’t my credit. I didn’t build thejob.”

Hart says it takes a healthydose of humility to lead her300 employees at her family’sgeneral contracting and construction management firm,which posted fiscal 2007 revenue of $108 million. And it’snot important that a leader becredited with every success.

“If you’re not worried aboutthat, then you’re going to dowhat’s in the best interest ofthe company,” she says. “Ifyou can think company first,that’s exciting.”

Smart Business spoke withHart about how to build a solidteam and why it’s important toacknowledge others’ success.

Acknowledge the success of others. It’s fun when you say, ‘Andthis team came up with thisgreat idea.’ If they had a success, share that with folks. Itgives away your power, andempowerment is fun.

We have the Monday morning memo, a weekly one-page memo that goes toeverybody in the companyby e-mail or hard copy forour job sites, and it talksabout our successes. Ourexecutive assistant collectsthe information, and anybody can put something in it.We’ve been doing it for atleast six or seven yearsbecause people need toknow what’s going on.

It’s important to communicate important informationthat your employees need ona weekly basis. When thingsstarted going electronic, westopped doing the company’squarterly newsletter, andusually, by the time it cameout, the information was oldanyway.

Talk and listen. Communicationis the key to collaborationbecause you have to spendtime talking to your teamabout all of the issues surrounding whatever it isyou’re leading. I go to different job sites, and I walkaround the building. Part ofit is discipline because it’seasy to hide behind our e-mails and not get out andtalk to people.

I do things like turning offthe computer when employees come in my office. It’sthat eye-to-eye contact. It’snot checking my Treo. Allthose things are just plaingood listening skills.

And then, I believe thatnone of us is as smart as all of us. You have to be willingto listen to ideas and suggestions and vet those ideas as agroup. Then you build consensus on what the appropriate solution is. When you dothings like that, it helps yougroom future leaders, aswell. Nobody has to be theman behind the curtain.

Choose the right teammates. Youcan always train technical.We look for attitude and foraccomplishments. Have theybeen able to accomplishthings? It depends on whatlevel of position you’re looking for. The accomplishments of somebody out ofcollege are going to be different than a senior manager,for instance, but you want tosee if they’ve taken initiative, taken some risks and triedsomething.

We also do personality testing by a third party and lookat all the different aspects ofthe individual to see if they’rea good fit for our culturebecause we all work on thesame team.

Create a positive culture. Myfather [Robert Elsperman,former Tarlton president]would say that he has twofamilies: the one that he’srelated to and the one at5500 W. Park Ave. Employeesspend a lot of time here, andit ought to be enjoyable.

They ought to have balancein their lives, but we expecta lot while they’re here, aswell. It’s that work hard, play hard piece. As long asour clients are happy, andeverybody here is happy, weusually have great results.

We (recently) had our fieldversus office softball game.We have a company picnic.We have a day in our equipment facility where employees can bring their families,and their kids can climb onequipment. We try to have alittle levity at Tarlton becauseour employees are hereawake more than any placeelse. We want people tostick around.

Loyalty is important to us.If I treat you as I’d like to betreated, it works.

Keep an open mind when makingdecisions. Sometimes you’vealready gone down the process of, ‘I know how wecan solve this.’ Sometimesyou have to be the personthat solves it, and sometimesyou have to make unilateraldecisions. If you’re lookingfor lasting success, createopportunities for decision-making that people can buyin to.

That trickles down intoour projects. For instance,one of the best things wecan do when we put together a schedule for a construction project is to getsubcontractor feedback aswe’re going through thatprocess. It makes them partof the team and helps thembuy in to those goals thatwe’re setting up.

HOW TO REACH: Tarlton Corp., (314) 633-3300 or www.tarltoncorp.com

Sunday, 26 October 2008 20:00

Be prepared

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New Year’s Day may be a great time to start a new diet and set fresh goals for personal growth, but it’s a little late for reflection and goal setting in the business world, especially concerning tax planning. And, in this economy and election year, planning has never been more important.

“Business owners and shareholders should be looking no later than November at how they think their year will unfold from an income tax perspective,” says Robin Bell, co-leader of the tax practice at Brown Smith Wallace LLC. “It’s important to be proactive. Ask yourself questions and engage in tax-related and financial-planning discussions with your team of advisers before year-end.”

Smart Business spoke to Bell about tax mitigation tools and planning techniques so business owners are aware of opportunities to minimize their tax consequences.

What are the opportunities in research and development?

Evaluate your research and development to determine if your company is eligible for the Research and Development Tax Credit.

The credit is based on a percentage of total, eligible expenditures, which includes wages, subcontractors/hired professionals, the cost of trial and error studies, and costs incurred during product development. The amount of credit depends on the specific business type and the amount of qualifying expenditures. If you have not determined previously that you qualify for the credit, you are eligible to amend prior ‘open’ year returns.

If you have taken the R&D credit in the past, it’s a good idea to re-evaluate your calculations and determine whether there is an opportunity to increase your benefit. This credit opportunity has cash flow impact.

How can efforts to improve energy efficiency pay off?

The Energy Efficiency Deduction rewards companies, large and small, that have built a new facility or renovated an existing building between Jan. 1, 2006, and Dec. 31, 2008. The facility must be in service by the end of this year. The new building or renovation must increase energy efficiency by 50 percent. This can include heating and cooling systems, water heaters, and interior lighting. If you meet the 50 percent energy-efficiency requirement, you may deduct up to $1.80 per square foot. The minimum deduction for energy efforts (that qualify) is $0.60 per square foot. Certification is required to qualify for an energy-efficiency deduction. Keep this deduction in mind and ask contractors and other professionals to document the energy-efficiency level of items that possibly qualify. Some contractors offer certification as a part of their building services.

What opportunities can businesses that produce and sell domestically realize?

If your company produces goods, constructs property, develops software, or produces electricity or gas, you may qualify for a Domestic Production Activities Deduction. This deduction is available to companies that have taxable income. The past few years, businesses could deduct 3 percent of ‘qualified production activities income.’ For years 2007 through 2009, the percentage increases to 6 percent. Depending on what happens after the election, that deduction is scheduled to increase to 9 percent for 2010 and beyond. Increasing deduction percentages could make calculating ‘qualified production activities income’ worth your time and effort.

Have tax benefits improved or changed for businesses that export goods?

If you export a minimum of $1 million in goods each year, you should think about a tax-advantaged Interest Charge-Domestic International Sales Corporation (IC-DISC). Here’s how this benefit works: If ‘Company A’ realizes $1 million taxable net income on exported goods, it would normally pay a 35 percent tax on that $1 million. By setting up an IC-DISC, Company A can pay a commission to the IC-DISC, with certain limitations. The commission income to the IC-DISC is then paid out of the entity as a qualifying dividend and taxed at 15 percent to the stockholders of the IC-DISC. Depending on the company’s export scenario, this arrangement can significantly mitigate tax consequences. This is one of the last tax advantages specifically available for exporters and could likely suffer if the qualifying dividend rate of 15 percent changes after the presidential election.

What if you have obsolete inventory?

If you have obsolete inventory that is taking up costly warehouse space, you should work to reduce or completely remove this inventory for tax purposes. Consider donating inventory, recycling it or discounting it to sell it quickly. For GAAP financial statements, the inventory would be written down or off when the value is less than cost or worthless. The deduction for tax purposes is different. You must dispose of the inventory.

What about capital expenditures?

The service has reinstated ‘bonus’ depreciation for 2008. For eligible property, you can deduct 50 percent of the eligible cost, with no limitation. These rules are very similar to prior ‘bonus depreciation’ rules.

Bottom line, take a proactive approach to tax planning and set aside time with your adviser well before year-end to discuss potential tax reduction opportunities. There are opportunities available today that can provide relief to growing businesses. You just need to know what business activities may result in tax benefits.

ROBIN BELL is co-leader of the tax practice at Brown Smith Wallace LLC. Reach her at (314) 983-1217 or RBell@bswllc.com.

Thursday, 25 September 2008 20:00

Industrial acquisitions

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One of the biggest mistakes that companies make when searching for a suitable industrial facility is waiting too long to start the process. The closer you are to your lease expiration date or purchase of a new facility, the less leverage you will have with your landlord. Even if you wish to stay in your existing location, considering all possible alternatives is a must. Properly evaluating alternatives requires a strategic plan with a qualified adviser.

“I would suggest the process begin anywhere between nine and 18 months in advance of the targeted occupancy date. This timeline varies based on the complexity of the deal,” says Ed Lampitt, vice president and principal for Colliers Turley Martin Tucker.

Smart Business spoke with Lampitt about industrial real estate, the importance of a supply chain analysis and how to find a quality tenant representative.

What is the current environment for industrial real estate like in the St. Louis area?

2008 can be wrapped up in one word: uncertainty. In short, everyone is uncertain about how the election and oil prices will impact the economy. Corporate America is struggling to forecast future real estate requirements and real estate investors are concerned about the changes in the capital markets. All of the uncertainty in the economy is slowing things down. It is like trying to punch someone under water. As hard as you try, you can’t generate any momentum. All that being said, St. Louis has performed very well, with more than 1.7 million square feet of positive absorption through the first half of 2008.

What factors make capturing prime industrial space so difficult?

Construction pricing is a real problem. The overall price of construction is increasing at historical rates. Contractors and their suppliers are having a hard time holding numbers for more than 30 days. This makes it very difficult to forecast what deal you’re going to be able to make.

It is important to find a building as close to what you need as possible so changes to the space are minimized.

Another factor is fuel pricing. Companies are continuously analyzing how transportation costs are affecting their supply chains, how this will affect where their facilities are located and, ultimately, how they’re going to serve their customers.

Why is it important to develop a strategic real estate plan when searching for a suitable location?

It starts long before you start searching for an actual building. Corporations are spending more time on the front end analyzing the entire supply chain, not just one portion of it. You can not evaluate facilities in a vacuum. Manufacturing, transportation, inventory control and facilities are part of one discussion. Large corporations have been doing this for a while. The trend we are seeing now is advanced supply chain analysis with small and mid-sized companies. Everybody is trying to better understand what is happening in transportation in order to help determine where they should locate their facilities. Anymore, transportation is 50 to 60 percent of the decision-making process.

Once you get to the real estate portion, timing is so important. For instance, if you have your plan in place, you can look at a build-to-suit rather than just taking speculative space. This will provide you with more options, more flexibility and better economic terms.

What is the biggest mistake companies make as far as lease renewals go?

The biggest mistake is when a company renews without scouring the market to make sure it is getting a favorable market deal. This holds true even if you are not expanding, don’t feel a need to move, or don’t want to spend extra money to set up a new operation. It is important that the market thinks you are willing to move to drive the best economics.

Also, sometimes companies base their decisions on what they are currently paying and that is often a mistake. Typically the market has changed since their last lease expiration. That is where market information becomes so vital. It is strongly encouraged that companies engage a brokerage company to help understand how they compare to the market.

How should a company go about finding a quality tenant rep?

Time and time again, I am amazed companies rarely go through the interview process when selecting a broker. This is one of the most important decisions a company can make and it should take the time to evaluate who its adviser should be. Interview a couple of referred companies (or brokers) and let the best team win.

Lastly, instead of hiring just a broker, companies are hiring firms that can provide additional services. Often, real savings can be achieved in state economic incentives, construction management, supply chain services, etc. Considerable time and money can be saved in arenas outside the actual real estate negotiation. Remember, companies, at most, move every five to 10 years; tenant reps do it every day.

ED LAMPITT is a vice president and principal at Colliers Turley Martin Tucker. Reach him at (314) 746-0383 or elampitt@ctmt.com.

Thursday, 25 September 2008 20:00

Securing the spirit

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It’s not that Greg Twardowski yearns for the time when Whelan Security was a small security patrol company along the Mississippi River.

But as his company continues to stretch out from the heart of St. Louis, it’s very important to him that the company retains as much of the spirit and character from those early days as possible.

“We no longer have the ability to personally touch the larger employee population,” says the company’s president. “It’s still very important to us that everyone understands and feels like they are still working for a small, family-run entity. We want them to know that the efforts they put forth individually are meaningful.

“As a leader, you have to constantly engage in dialogue and debate with your employees. You have to be attentive to their needs, concerns and recommendations. You have to be responsive and available. Your door has to be open, and you have to answer your phone.”

It’s that kind of attentiveness that makes employees feel like they’re part of the team. It’s also quite a challenge for Twardowski, who has watched his company grow from 950 employees in 2000 to more than 3,600 employees today while posting 2007 revenue of $98.8 million.

By staying in touch with his people and the pace of his company’s growth, Twardowski has Whelan Security poised to continue its success.

Be patient

One of the hardest parts of leading a company that has grown beyond its roots is the challenge of keeping in touch with a larger group of people working in multiple locations. The bigger a company gets, the harder it can be to communicate with everyone.

Whelan has taken steps like printing a card with the company’s mission and values on it that every employee is expected to carry. It’s one way of making sure everyone is clear on those things and that they understand they play a part in the company’s future.

But Twardowski needed more than just cards. He needed leaders who could develop the close bonds with employees that he no longer could because of the company’s growth.

“Leadership is not character traits,” Twardowski says. “It’s a set of behaviors that influence the behavior of others, hopefully in a way that makes those employees more likely to achieve organizational goals.”

When you are building a team, avoid making rash decisions. “You don’t build effective teams by filling holes with the wrong people,” Twardowski says. “The cards are irrelevant, your actions are irrelevant, communication is irrelevant and the service is going to be poor.”

Experience in the industry is important in making a good hiring decision. But Twardowski puts much more weight on a person’s character and work ethic.

In order to get that kind of insight on a person, you have to look beyond the resume and spend time with the candidates and get to know them. Learn about who they are and how they match up with your leadership philosophies. Perhaps just as important, don’t compromise your organization’s values.

“Our values are very traditional and conservative,” Twardowski says. “They are not values that are learned or lived by once you join our organization. They are values you should already have when you join the organization.”

It’s impossible to expect 100 percent of your hiring decisions to turn out just as you expect. But Whelan has found success using testing, psychological profiling and third-party analysis.

It all comes back to being patient. “It’s a very tedious process with a lot of personal interaction,” Twardowski says. “We do make mistakes. We just have to try to minimize the mistakes.”

Focus on feedback

Twardowski asks each of his employees to respond to an opinion survey at least once every year. He says that the effort to get employees to respond and respond honestly is a challenge, but the time-consuming process is essential to building a culture of trust.

“Without a level of trust, you get two responders,” Twardowski says. “You get a responder who is extremely happy and that’s all they write and everything is positive. Or you get an employee responding who is extremely irritated. ... If and when you create that culture of trust, you find the middle territory and that’s where you truly find your great suggestions, recommendations and opinions being expressed by employees.”

Like anyone, Twardowski says he loves to hear about all the things he and the company are doing well. But it’s the honest, well-reasoned opinions and suggestions that he finds to be most valuable.

“That’s where I spend most of my time,” Twardowski says. “There’s some disconnect with the values or the business principles, and they need to be addressed. If an employee is responding to an opinion survey that way, you know there have to be others. That’s where my letter writing and telephone calls and personal visits go, in response to that middle and lower half.”

Twardowski says his goal is always to encourage flow of communication from the lowest level of employee right to the president’s office, and the survey is one way of doing that.

“When we invert the organizational chart, our lowest level employee is at the top and then it filters down all the way to me,” Twardowski says. “If I’m properly supporting my senior team, they are supporting the regional team, the regional team is supporting the branch team and the branch team is supporting the top line, which is our population of security officers.”

And by focusing on the negative or lukewarm responses to his employee surveys, Twardowski reinforces the idea that he is not afraid of conflict.

“What you see in society is an awful lot of people who are afraid of conflict,” Twardowski says. “That’s OK to be afraid of conflict outside of an organization. Inside an organization, if you are afraid of conflict and you have employees who are afraid of conflict because it’s not a trusting environment, it’s problematic and can stifle an organization.”

Check your pace

Growth is a good thing, but like all good things, it needs to be done in moderation. Twardowski says you can have a great deal of control over the pace at which your company grows.

“I think I can control the growth on an annual basis,” Twardowski says. “That doesn’t mean that I’m controlling every opportunity. It means that I have built the team who understands my expectations.”

The key is to have a clear idea about what pace you want your company to grow at and to communicate that plan to your employees. Determining pace comes down to asking yourself a few questions.

“Does your organization have the proper infrastructure in place to absorb the growth, and does it have the infrastructure in place without having to put the cart in front of the horse,” Twardowski says. “Are you going to have to invest significantly in the infrastructure to support the future growth? Are you going to be able to sustain your culture and values systems with the added revenue and employee base?”

To answer those questions, you need to create a system where company data is being tracked on a regular basis. Whelan uses a scorecard system that keeps track of various items month by month.

“We are constantly feeling the pulse of the growth and the pulse of change within the organization,” Twardowski says.

By maintaining a read on your company’s key metrics, you can provide clearer direction to employees and, in the process, ease the fear of the unknown with employees.

“People struggle with change,” Twardowski says. “I’m leading an organization that is growing at a fairly significant pace. With change comes growing pains. It’s managing the change and then it’s managing those growing pains while simultaneously trying to keep your culture and value system, which really shouldn’t change, intact.”

Part of the process to keep that system intact is making good decisions about when to hire and how many people to hire during times of growth.

“If you are going to build for growth in the future, you can’t maintain unsupported overhead or you end up with an organization and an infrastructure that becomes complacent,” Twardowski says. “You have to be constantly trying to stretch the organization. If you are constantly overstaffed, you eventually have an organization built on complacency and it does not expect to have to work as hard.”

When a company loses control of its growth, the results can be very damaging.

“The foundation upon which the company was built and the trust you established with your consumer or your customer is very quickly eroded over a 12-to 18-month period if you can’t catch up to provide the proper infrastructure to support the growth,” Twardowski says.

Whelan grew about 31 percent last year and hopes to grow by about 24 percent this year. Twardowski says that most business analysts consider 20 to 30 percent growth manageable.

“I certainly could be growing faster,” Twardowski says. “But the foundation of the company wouldn’t be as strong. All business isn’t good business. All growth isn’t good growth. My belief, and it’s a belief that is published often, is that growth over 50 percent or growth in the range of 50 percent to 100 percent, which is termed hyper growth, can actually choke out an organization and choke out future growth.”

Like a good house, Twardowski says it all comes down to the foundation.

“If your company does not start with a solid foundation built around a culture and a solid foundation of business values and core values, regardless of instructions given to employees at any level, it’s hard for them to understand how they are expected to act and/or perform on a daily basis,” he says. “It’s just the foundation upon which the rest of the service delivery model is delivered.”

HOW TO REACH: Whelan Security, (888) 4-WHELAN or www.whelansecurity.com

Tuesday, 26 August 2008 20:00

Group effort

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Humility could be Gary Olson’s middle name. As the president and CEO of St. Luke’s Hospital, Olson is under no illusion that he could do it all himself.

Olson says that in his 30 years of working for the Chesterfield organization, he’s learned that it takes a team effort to create a strong institution where employees enjoy coming into work every day.

“I’ve been given the opportunity, and if I use the talents of the people here, the skills that they bring to the table, that’s what moves this organization forward, not one individual whatsoever,” he says.

Olson leads his 3,000 employees at St. Luke’s with an emphasis on collaboration, and in fiscal 2007, the organization reported $363 million in total operating revenue, an increase of 7 percent over the prior fiscal year.

“Being surrounded with outstanding individuals makes you want to perform better with them,” he says. “Not for them but with them.”

Smart Business spoke with Olson about steps you can take to make your organization a great place to work.

Define your ideal workplace. For me, an ideal workplace would be a place where you can enjoy coming to work, actually have some fun and accomplish the specific goals that have been assigned to you. This is a place where you can be proud of what you’re doing — your efforts as well as the results — and it would be an A effort.

An ideal workplace here is an environment where people like to work with you and be around you, and you feel like you’re all working toward the right things for your patients. This work-place provides the resources and tools that a person needs to be able to do the things they’re trained to do. It’s an atmosphere where you can actually have friendships beyond the work-place, if that’s your choosing.

You’ll pull together if something unexpectedly becomes a challenge, and you’ll want to be a part of solving it. Employees will want to contribute to the success of the organization. It’s a place of teamwork as opposed to individual successes.

Start with communication. Business leaders can begin by going out into the different parts of their organization, visiting with staff and having significant amounts of communication — accepting and receiving feedback and explaining to individuals why decisions are made so that there’s full understanding.

I want whoever brings me a concern to be able to state it clearly, and I ask that they also state the potential solutions to the concern, as opposed to just handing it to me. Their decisions impact others so, where possible, input should be sought before bringing the final recommendations to me. If they feel comfortable, I would let them make the decision and not have to bring a recommendation to me.

A title can define somebody’s authority, but more importantly, a person’s performance over time defines their authority. They know what they can decide on their own or with their staff, and they know what they should run by management for input before proceeding. When you allow employees to make decisions on their own, it demonstrates that you value their thoughts, their opinions and their potential resolutions to concerns.

Maintain corporate culture. Provide an atmosphere that allows your employees to use the skills that they’ve learned and let them apply those and feel good about them. They have to see results for others, more so than for themselves, and they have to know that they were a part of those positive results or outcomes.

In health care, it comes down to doing things not only with great care but with a caring attitude. Success can be defined as feeling good about what you’ve accomplished and knowing that you’re not done — you need to do more each and every day.

Leaders should provide an environment that is constructive, collaborative, communicative, friendly, and all of those fall under the umbrella of high quality.

Solicit feedback. We measure these things through employee opinion surveys. We use an outside firm to do that every 12 to 18 months. When we receive feedback, we share the results with the employees. We priori-tize the results and then develop action plans to improve our performance where it’s appropriate.

If you’re going to ask employees for feedback, you have to be prepared to act on whatever it is. If it’s a positive, we want our fellow employees to know that these are the things we think we’re doing well. If there are some things we could do better on, we’re going to work on a plan with them to improve on those things.

Turn the negatives into positives. As concerns are identified, they have to be addressed. First, identify the employee’s concern and get a good understanding of it. Since the survey is anonymous, you want to give the concern back to the area from where it might have come, and if you can, bring in individuals that identified that concern and ask them to further elaborate on it.

Hopefully, the people identifying the concerns can be part of the solution, as opposed to them saying, ‘Here’s the problem. Now you fix it.’ Then, they’ll work with the employees who have the ability to help rectify those concerns.

Get that group to develop a game plan and identify expected results that everyone can be happy with ... and then monitor the success. You want to give that A effort. Sometimes you have great efforts and the results aren’t there, but the efforts matter.

HOW TO REACH: St. Luke’s Hospital, (314) 434-1500 or www.stlukes-stl.com

Tuesday, 26 August 2008 20:00

The value of a valuation

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Business owners and executives who do not allot the time and budget for valuations could suffer unexpected consequences, including tax penalties and lack of compliance with financial reporting rules.

“Post Sarbanes-Oxley, auditors are taking fair value measurements and related requirements seriously,” says Donna Beck Smith, who leads the financial advisory services (FAS) practice at Brown Smith Wallace LLC.

But, before enlisting a professional for a valuation, check for certification and, for highly specialized or regulated industries like health care, banking or insurance, be sure the individual is experienced in those fields.

“Valuations require extra training and experience, and it’s risky if you consult with someone who does not have that expertise,” says Brad Pursel, a principal in the FAS practice at Brown Smith Wallace LLC.

Smart Business spoke with Smith and Pursel about how to prepare for a valuation and how to select a reputable appraiser.

When should business owners or executives call on a professional for valuation services?

Closely held businesses cannot easily convert their interests into cash equivalents for gifting to individuals or charitable organizations. A proper valuation establishes the worth of interests so owners can pursue estate tax planning. To comply with tax and financial reporting rules, there are requirements related to the granting of stock-based compensation. Those grants must be at fair value or the recipient and grantor may suffer negative tax consequences. Valuation frequency will depend on how often the company grants equity-based compensation but the valuation must not be more than 12 months prior to the grant date. Additionally, whenever a company makes an acquisition, financial reporting rules require a fair value analysis of assets and liabilities acquired as part of any transaction. Valuations are also necessary when a company owner wants to buy out a partner or invite another individual to take ownership in the company.

How should you prepare for a valuation?

First, a valuation professional will ask for audited financial statements, and if those are not available — which is often the case with smaller, privately held companies — the owner will be asked to supply past tax returns. Owners should prepare to discuss their projections for the future and goals. Where do they see the business going? What are the company’s cash flow drivers? Who is its customer base and supplier base, and who are key industry competitors? Common mistakes business owners make is waiting until the last minute to find a valuation professional and choosing a service provider based on price. In most instances, owners should really plan on a minimum of four weeks for a proper valuation. Six weeks or more is even better. Rather than shopping price, find a professional who is best qualified to work up a valuation that will withstand scrutiny. Getting an inferior product that might be lower-cost can have serious implications down the road if the IRS reviews the valuation and assesses penalties. For valuations necessary for financial reporting purposes, an inferior work product may lead to increased accounting and valuation fees if the company’s auditor finds problems with the methodologies and/or assumptions used by the appraiser.

What due diligence is necessary before performing a fair value measurement?

Start by checking credentials. Valuation experts should have a long history of relevant experience. They must keep abreast of changes in the appraisal and valuation industry, which is ever-changing. Valuation should not be an area of occasional practice. With evolving financial reporting rules, there is a pretty good chance that an accountant moonlighting as an appraiser will overlook details. That said, find out if the person you want to hire for the valuation is a member of the American Institute of Certified Public Accountants, the American Society of Appraisers or the National Association of Certified Valuation Analysts. These organizations require a course of education with written exams, field experience and continuing education to maintain accreditation.

What do business owners need to watch for in the financial reporting world?

There are new standards that will be effective at the end of this year that could have significant implications for companies that make acquisitions and the financial reporting consequences associated with those acquisitions. In the past, companies have not had to value certain contingent considerations that were included in the transaction. If the seller was eligible to receive an earn-out based on post-acquisition performance, in most instances, there was no recognition of the earn-out as of the acquisition date. Going forward, companies must value such contingent considerations of the acquisition date and any changes in value will flow through the income statement. In this situation alone, the scope of valuations will increase.

Also, as baby boomers that are running privately held or family businesses begin to pursue succession planning, there will be greater ownership turnover and, as a result, demand for valuations to ensure fair measurement of company interests. You know the saying about being ‘penny wise and pound foolish’? That applies to valuation. You may be enticed by a low-priced valuation service, but on the back end, after you go through an IRS review, you may rue the day you made the decision to go with a less qualified purveyor.

DONNA BECK SMITH leads the financial advisory services practice at Brown Smith Wallace LLC. BRAD PURSEL is a principal in the FAS practice at Brown Smith Wallace LLC. Reach Smith at DSmith@bswllc.com or (314) 983-1259. Reach Pursel at BPursel@bswllc.com or (314) 983-1344.

 

 

Saturday, 26 July 2008 20:00

The tenant rep advantage

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When renewing a lease, getting a quality tenant rep involved early can pay huge dividends, according to Piers Pritchard, senior associate, and Jay Holland, senior vice president and principal, both of Colliers Turley Martin Tucker.

“Your landlord is in the real estate business; brokers level the playing field,” Pritchard says. “Brokers provide expertise so you can concentrate on your core business.”

Smart Business spoke with Pritchard and Holland about what services tenant reps provide, the importance of making contact early and what types of savings can be realized.

What benefit does a quality tenant rep bring to the table?

A quality tenant rep provides a broad spectrum of services. It’s not as simple as just showing buildings — there is a wide array of knowledge that is necessary for every aspect of a transaction. This includes accurate and up-to-date market information, construction expertise and a detailed knowledge of lease documents. In addition to identifying properties and providing expertise in the negotiation process, a good tenant rep will provide a comprehensive financial analysis that allows their clients to compare alternatives on an ‘apples to apples’ basis. By utilizing the services of a quality tenant rep, a company can reduce occupancy costs, increase profitability, mitigate lease risks and minimize time invested. A quality tenant rep will also interview architects on behalf of tenants. If a tenant is going to move or renovate its existing space, it will need an architect to design the space. A good tenant rep interviews architects and negotiates architectural contracts — at no charge.

How can a tenant rep help a company gain leverage during the negotiation process?

When negotiating, it’s critical to have as much leverage as possible. When conducting real estate negotiations you gain leverage through a number of factors. Some of those include using market comparables — knowing what other deals the landlord has done, what the market dictates, what the landlord acquired the building for, upcoming lease expirations and if the owner has any intentions on selling the building. All of these factors affect a lease renewal and good brokers will use this information to gain leverage with a landlord, whether it’s an existing landlord or potential relocation.

At what point should a company contact a tenant rep?

The lead time necessary is dependent on the size of the tenant. The largest tenants need to engage a tenant rep several years prior to lease expiration so new construction can be considered. For smaller tenants, it’s important to contact a tenant rep at least 12 to 18 months prior to a lease renewal for several reasons. One, the lease renewal/relocation process, when done properly, simply takes that much time. Secondly, and more importantly, in order to properly assess all of a client’s options it’s imperative to review, explore and negotiate any relocation options before a tenant hits renewal option dates.

Typically, tenants will have the option to renew their lease with an option time between 6 and 12 months before the lease expires. It’s important that market research is completed before that option date, because if it’s not, you’re exposed to your existing landlord. Tenants that pass through renewal options are often treated differently than those with options as their ‘parachute.’ Landlords can stick tenants with above market deals simply because the tenant does not have enough time to move. Being ahead of the curve is critical.

What types of cost savings can be realized by utilizing a tenant rep?

There are two types of savings, quantitative and qualitative. Quantitative savings include how much you lowered the rent, how much the construction allowance was increased, and how much free rent a tenant received.

Perhaps even more significant — and where a good broker can drive value — are the qualitative items, which are more difficult to measure. That’s where you really see the benefit of having a strong tenant rep. Items in leases like renewal option language, operating expense caps and exclusions, termination and expansion options, white-box definitions, subletting rights and code compliance are hard to quantify upfront because you can’t associate a dollar value to them. But over a three-, five- or 10-year period — whatever your lease might be — you are certainly going to have to reference the lease for certain items. Qualitative items are hard to identify upfront, but often provide the biggest benefit in the long run.

What questions should be asked when meeting with a prospective tenant rep?

First, make sure the rep has adequate experience with similar types of tenants and transactions in the market. Secondly, ask a prospective tenant rep to answer the most important questions upfront, including: Specifically how are you going to save me money? How are you going to reduce my occupancy costs and increase my company’s profitability? What do you know about my building and landlord? Every good broker should think from the landlords’ perspective. What keeps them up at night? What specific issues are they having in the building? Are there other tenants with leases expiring in the near future? Are there tenants moving out? If there is a tenant moving out, the landlord will be more sensitive to your lease — they’re already losing one tenant and certainly don’t want to lose another.

PIERS PRITCHARD, senior associate, and JAY HOLLAND, senior vice president and principal, are both of Colliers Turley Martin Tucker. Reach Pritchard at (314) 236-5477 or ppritchard@ctmt.com. Reach Holland at (314) 236-5446 or jholland@ctmt.com.

Thursday, 31 July 2008 20:00

Abdicating the throne

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Gary Reeve has been in business for too long to expect that he’ll ever have it all figured out.

“There is always something unknown that is going to pop up,” Reeve says. “Even though you plan so much or so well, there is always going to be something that you don’t have control over.”

Five years ago, it was the cost of insurance that skyrocketed after the terrorist attacks in the United States. More recently, it’s

been the rising cost of fuel that has forced companies, such as MMS — A Medical Supply Co., to tighten their budgets.

Reeve, the co-owner, president and CEO of MMS, says the key to good leadership through uncertain times is having the ability to respond to a situation both promptly and without panic.

This is much easier to do when you share the leadership of your business. By spreading the responsibility for running your company to others, you open the door to a wealth of solutions you may not have come up with on your own.

“You can have the greatest quarterback in the world, but if you don’t have a team, that line will never protect him,” Reeve says. “Business is no different. If you have a good team surrounding you, a lot of problems are handled long before they hit management.”

Reeve has taken MMS from a $35 million company in 1996 to $336 million in 2007 and now has 450 employees.

As the company has grown, he has not only had to assess how involved he should be with day-to-day problems but also whether the people under him are the right ones to keep the company moving forward.

The key to managing through such growth is to stay in touch with what your business needs. By doing so, you’ll know which of your employees have what it takes to grow with you.

“In some cases, you’re going to have to end up rocking the boat,” Reeve says. “You make some decisions and you move ahead.”

Here’s how Reeve abdicated many of his day-to-day responsibilities to focus on long-term strategic decisions and used his own knowledge of his people to figure out where they fit in the big picture.

Don’t try to be a hero

One of the employees who perhaps had the most difficult time adjusting to the significant growth at MMS was Reeve.

“I was actually running myself ragged,” Reeve says. “I handled the insurance, banking, sales, operations, purchasing of equipment, negotiating our leases, and our acquisition team was really one person. I couldn’t keep up anymore. It was impossible. That’s where I had to be flexible.”

One of the first steps was to hire Tom Harris as his executive vice president.

“Tom came on board, and I shifted a tremendous amount of things to Tom,” Reeve says. “At this point, my job is much different than it was five years ago. I still handle our leases, and I do a lot of the financials and still have relationships with the banks, but it’s much different on the day-to-day stuff.”

The hard part for Reeve was staying away from many of the tasks that had been his responsibility.

“It’s relatively easy to pass it off, or at least, it was for me,” Reeve says. “The hard part was staying away. Once I passed it to Tom, then it was hard for me not to say, ‘Wait a minute, you ought to be doing this,’ or, ‘I would do [it] this way.’ That was probably the most difficult thing. To keep telling myself, ‘If I get involved, then I might as well not even have given it up. If I’m going to continue to do all those things, it doesn’t mean we still can’t sit down.’”

As the CEO, you may have to literally remind yourself that you have other employees and a management team and a staff for a reason. It’s not all on you to make your company go, and once you delegate, you have to let your people do their jobs.

“If you really want to give something up, you have to let somebody else go with it or else they will never attain the ability to even do it,” Reeve says.

And just because you’re turning over a task or two to another person, as the CEO, you still have every right to ask questions and be in on the discussion of key issues.

“You’re always going to be there,” Reeve says. “If I see us wavering from where we’ve all agreed to go, at that point, it doesn’t mean I won’t say something. There are always two roads to get to the same place.”

Shifting responsibility is a gradual process and works better if you don’t just dump a job on another person without any support or orientation to the new duties.

“You work with them a little in the beginning, and as you go along, you just go ahead and, more or less, give them the responsibility and back away,” Reeve says. “It’s a continuing process. We try to empower people to make a lot of their own decisions. If they make bad decisions, you rein them in. But if they are making good decisions, we’ve empowered them to move ahead.”

Show you are flexible

Once his own role in the company was more clearly defined, it was time for Reeve to figure out who among his employees had what it took to be part of his growing and evolving business.

“You’ve got some loyal employees that helped you grow from one level to the next, and they either have to be let go or have to be moved into different positions,” Reeve says. “We’re almost like a family company. Initially, it was very difficult for us.”

Some people were allowed to continue on, resulting in mistakes being made along the way.

“That’s probably one of my shortcomings,” Reeve says. “I probably give them too many chances. In some cases, I’m being critical of myself, and I knew the decision had to be made, but I just wanted to give them another chance — and then I wanted to give them another chance.”

If you do it right, it’s OK to give people a chance to prove themselves. One of the best ways to do this is by witnessing the the failure to demonstrate the initiative to improve.

“If that person wants to be in that department and doesn’t really show that they want to grow, there’s no way we can,” Reeve says. “If that person shows a little initiative, it’s looked at, and they’ll be given opportunities to grow.”

Oftentimes, an employee just isn’t in a role that suits his or her talents and needs to work in a different area.

“You sit down with the party that you are having the problem with and lay out what’s going to be happening,” Reeve says. “There’s opportunity for everyone. We’ve taken service reps and they’ve become our star salespeople.”

You’ll have a better awareness of what your employees can and can’t do if you get out of your office regularly and talk to them.

“I will have lunch in the employee lunchroom probably three days a week,” Reeve says. “Communication is important in any company so everybody knows where you’re headed and what you’re doing.”

The idea is to instill in your employees that you want their input and their feedback about how the company operates.

“By nurturing that flexibility, everybody is always looking for a better alternative,” Reeve says. “If somebody comes up with something that’s a little different, you don’t slam it and say, ‘God, how stupid is that idea?’ If they come up with an idea, let’s discuss it and talk about it. Maybe the next time you come to a meeting, give us all a set of those ideas in advance so we can do a little thinking before the meeting.”

If it becomes clear that a given employee is not going to fit and is not capable of filling a role in the company’s future, you need to be honest and make a change.

“If that salesperson doesn’t have the desire to go out on their own, maybe that person, for whatever reason, doesn’t have some of the skill sets to do that or the discipline or personality or self-confidence to do that,” Reeve says. “Maybe there will be somebody else who has all the skill sets, and they will move very smoothly right into it.”

Reeve says it’s tough when you’re talking about an employee who has been with the company for a long time. He says he felt the respect among his staff for giving second and third chances to personnel searching for a new role.

“But I think had I gone further, I think I would start losing respect,” Reeve says. “Sometimes, if you’ve given too many chances, at some point, they have to step up and do something.”

Show that you care

One of the ways you gain respect and the buy-in of your people is to show that you care about them as people in addition to the fact that they work for you. At MMS, there is Employee Appreciation Day.

“We have little cards made up, and all the managers get them and they are supposed to write a little note to all their employees,” Reeve says. “In it, we’ll throw in a little gift card. We try to make all our employees feel important because they are.”

Part of feeling appreciated is being kept in the loop about what’s happening. MMS makes use of its marketing department to communicate not only to media and people outside the organization but also to its own employees.

“One of their functions is to take the information in the newsletter and make sure that employees understand what is happening,” Reeve says. “It’s no different than it is for advertising. We work with our own employees and make sure they understand what we’re doing, so nobody is in left field and they don’t know.”

By being open and communicative, you can help break down the barriers that may exist between you and your employees.

“A lot of times, the problem with being the head of a company is everybody treats you a little bit different,” Reeve says. “You build a trust level with certain people.”

Have your managers sit down with employees in groups and discuss company strategy. Set goals and objectives and implement bonus plans for employees who strive to meet those targets.

“A manager will sit down with employees and say, ‘OK, what do we need to do within our own group or department?’” Reeve says. “All those goals and objectives will be in a master plan to help the company continue to grow. ... People know there is a difference between when you are genuine and when you aren’t. Try to do things with the employees in mind as well as the bottom line.”

As far as analyzing his own role in the company, Reeve says he will always be his own worst critic.

“I think I’d be a terrible judge of myself,” Reeve says. “I won’t say it’s bad. But I try to do things well. I work harder to do things than I’d ask somebody to do for me.”

But in his new, more team-oriented role, there is an adage that Reeve tries to live by.

“Pigs get fat and hogs get slaughtered, so don’t try to take on too much,” Reeve says. “Because that can bring you a whole new set of problems.”

HOW TO REACH: MMS — A Medical Supply Co., (314) 291-2900 or www.mmsmedical.com