How to secure the financing to grow your business in a tight credit market

Eric Fricke, Assistant Professor of Finance, Department of Accounting and Finance, California State University, East Bay

Despite a stabilizing economy and a letup in the banking crisis, small community banks approved approximately 47.5 percent of commercial loan applications in January, while banks with more than $10 billion in assets approved just 11.7 percent, according to Biz2Credit.

In comparison, lenders like community development financial institutions, accounts receivable financers, merchant cash advance companies, micro lenders and others approved more than two-thirds of applications from potential borrowers. The data confirm that executives have to be resourceful and think outside the box to secure the funding they need to expand their small or mid-size business in today’s tight credit market.

“Executives may be forced to restructure, cede market share or relinquish prime opportunities unless they avoid a short-term cash crunch by securing alternative funding,” says Eric Fricke, assistant professor of finance, Department of Accounting and Finance at California State University, East Bay.

Smart Business spoke with Fricke about the ways to finance growth by tapping alternative funding sources.

How can alternative financing help small and mid-size companies grow?

It’s great when a small business consummates a big sale, but it often ends up being a catch-22, because small and mid-size companies may not have the cash to purchase equipment or inventory to fulfill a substantial order. Alternative financing provides up-front capital when traditional commercial loans aren’t available. Best of all, the loans are scalable and may be easier to secure because they’re tied to a specific asset or invoice, so you may not need to submit a full business plan, financial statements and cash flow projections as is normally necessary to comply with today’s strict underwriting requirements.

When is alternative financing appropriate?

Alternative loans are perfect for businesses that have predictable cash conversion cycles. For example, importers and exporters have to advance cash to purchase products, and then wait until  they reach stores and finally sell. And retailers and restaurateurs may have immediate needs for cash but can’t wait for future credit card transactions to finalize. Companies can close the gap in cash conversion cycles by securing a loan tied to a particular transaction, like accounts receivable, inventory, machinery, equipment and/or real estate.

What’s the best way to research and uncover alternative funding sources?

Sometimes traditional banks offer asset-based loans and other forms of alternative financing. But, you can find additional sources by searching the Internet or contacting your industry association and equipment manufacturers, since some vendors offer financing if you purchase their products.

What are the best sources of funding?

These are common sources of alternative funding.

  • Asset-backed loans. Asset-backed loans are secured by collateral like accounts receivable, inventory or equipment and they may be easier to get because the lender may consider the credit worthiness of your customer. So, if you’ve sold a large number of T-shirts to a major retailer, a lender may be willing  to lend you money against that invoice because of the retailer’s ability to pay.
  • Equipment leasing. Equipment leasing is a popular option for companies with limited capital because the bank or equipment manufacturer purchases the equipment and leases it back to them in exchange for a monthly payment.
  • Factoring. Factoring lets you sell your accounts receivable to a third party. The factoring company buys your invoice from you for an amount below the actual invoice amount. You get the up-front cash you need to fulfil the order and the factor collects the invoice once the transaction is complete.
  • Merchant cash advance. This provides a lump sum cash payment in exchange for a percentage of future credit card or debit card sales. It facilitates cash flow because the lender deducts a portion of every credit or debit transaction until the debt is repaid.

What’s the downside to alternative funding?

Alternative loans tend to be more expensive than traditional loans, but the costs may be more easily allocated to certain customers, so you can more easily build the costs into the price of your products and services. Plus, the loan amount is scalable with your sales or a particular transaction instead of being tied to your net worth or cash flows. Some executives view the outsourcing of accounts receivable to a third party as a welcome benefit, while others like to maintain control of the collections process and client communications. But, for most owners, the benefits of accessing funds on an as-needed basis without navigating a grueling underwriting process far outweigh any drawbacks.

What else should owners know before pursuing an alternative loan?

Shop around, because the costs of alternative funding vary among banks and other financial institutions, and if possible  factor the cost of your financing  into your pricing. Finally, read the fine print to make sure you understand not only the costs, but also the process and timeline for distributing funds, since some lenders may collect receivables for you and delay dispersal of funds from risky sales orders.

Eric Fricke is an assistant professor of finance in the Department of Accounting and Finance at California State University, East Bay. Reach him at (510) 885-2064 or [email protected]

Insights Executive Education is brought to you by California State University, East Bay

How to find the right funding solution for your growing business

Michael Field, Executive Vice President, Technology Banking, Bridge Bank

When a business is new, its owners may not know where to turn for help raising capital. Is funding from a bank a better option, or is private equity a better fit? And how do you decide?

Your banking partner can help you evaluate your needs and options, then steer you in the right direction, even if the bank isn’t the best solution, says Michael Field, executive vice president, technology banking division, Bridge Bank.

“Your banker can look at all the factors and determine whether it can put together funding to meet your needs,” says Field. “But even if the bank isn’t comfortable, your banker may be able to provide a solution to enhance the debt side of things or the equity.”

Smart Business spoke with Field about what to consider when looking for funding and common mistakes to avoid when doing so.

What should start-ups consider when looking for access to growth capital?

The first thing is debt versus equity. If you have no product, just an idea and a business plan, debt is probably not the right solution. That’s more of an equity play with investors who support and finance research and development.

The bank then steps in to finance growth, after you’ve developed a product, or raised sufficient capital so there is an ability to execute the plan. But it can help you at any stage. For example, if are looking for equity, the bank can help introduce you to the right players.

What are the factors to consider when determining whether bank funding or private equity is a better fit?

First, look at cost. Equity is much costlier than debt, and you have to give up a percentage of your company. With debt, you may not have to give up any of your company.

Also consider flexibility. Debt has more restrictions, whereas with equity, the money can be used with more freedom.

What do banks look for when judging a young company’s ability to repay a loan?

Banks look for sources of repayment. They look at cash burn — how long will the cash you have currently and the bank’s cash last you? They look at cash flow and measure balance sheet strength and how liquid you are, what kind of investor support you have and whether future rounds of funding are expected, and whether you have a lead investor who is supporting the company or if you are bootstrapping with friends and family.

What common mistakes do start-up firms make when seeking capital?

Companies don’t realize they can leverage their balance sheet using debt versus raising equity. Why would someone use debt versus equity? Often, it’s to get to the next stage and increase the value of the company before going for equity. In addition, they’re not giving up as much of the company. Leveraging debt to get to the next stage really allows you to get a better deal from investors.

Also, sometimes people get greedy. They may have a really good investment on the table from an investor, but they don’t take it and then the opportunity goes away. They get greedy because they think they can obtain a better deal by continuing to shop. Sometimes there is a good deal on the table, and you should just take it, whether it’s from the bank or from equity.

Business owners also make the mistake of viewing funding as a transaction rather than a partnership. Is the person you’re working with on the same page as your management team and investors? Are your goals aligned? Is everyone working in the same direction? If the relationship is purely transactional, that can get a company into trouble.

In addition, companies sometimes fail to balance sources of capital. All equity or all debt may not be the best solution. Sometimes spacing it out by taking some equity and some debt can help you on price, as well as diversify your sources of capital.

How can a banker help you identify the best solutions for your needs and provide opportunities for growth?

The banker will ask about your business, your investors and your plans for capital. He or she will look at financial projections, as well as history, to assess where you are and where you are going. As far as banks go, products are products. It’s how your banker applies them to your individual situation that makes a difference. That’s where that expertise comes into play, whether it’s with debt, or with equity solutions, even though the bank is not providing the equity itself.

People often don’t realize the benefits of associating with a bank that knows the market. The bank can provide introductions to service professionals and equity investors. It can assist your company as it grows, providing widespread solutions.

The bank can also help as you look to expand internationally. In the early stages, a company may not have the management team to understand the international side of things. Relying on the expertise of a bank with international experience can help you get to the next stage.

When should a business begin to establish a banking relationship?

Starting that relationship early, even if it’s just with a checking account, makes the bank aware of you, and as you grow, it can help guide you through the process and into the next stages.

Think not just about the transaction but about your relationships with different providers. There are providers who will become partners, and there are others that are just transactional. Finding those partners is key to your success.

Michael Field is executive vice president, technology banking division, at Bridge Bank. Reach him at [email protected] or (408) 556-6501.

Insights Banking & Finance is brought to you by Bridge Bank

How to allocate your reward investment dollars for maximum employee engagement

Josh Strok, Director of Rewards, Talent and Communication, Towers Watson

Every employer considers foundational rewards — base pay, benefits, retirement packages and paid time off — when working to attract and retain employees. But there’s more to it than that, if you want your employees to remain engaged in their work, says Josh Strok, Director of Rewards, Talent and Communication at Towers Watson.

“You should consider performance-based rewards, such as merit-based pay, bonus plans and recognition programs, which help differentiate performance and reward top performers,” says Strok. “These rewards focus employees on the company’s priorities, as workers see where the organization is putting additional dollars. There are also career and environmental rewards, which include career development opportunities, training, mentoring, corporate social responsibility and wellness programs.”

Smart Business spoke with Strok about how employers can use total rewards optimization to allocate their reward investments for maximum return.

Why should an employer create a total rewards program?

We know organizations have placed additional burdens on employees since the beginning of the recent recession. In our 2011/2012 Talent Management and Rewards Study, nearly two-thirds of organizations have employees working more hours over the past three years, and over half of the companies expect this to continue over the next three years. Coupled with the increasing difficulty to attract and retain top performers and people with critical skills, crafting appropriate total rewards programs is more important than ever.

Employers are worried they might not be able to meet employees’ expectations as the labor market heats up and workers gain more negotiating leverage. By evaluating your total rewards offering now, you can determine how to strengthen your organization’s employee value proposition — and minimize the risk associated with losing critical-skill talent.

Most employers know that a highly engaged work force is a leading indicator of strong financial performance. So they’re working to deliver an employee deal that engenders workers’ rational, emotional and cognitive commitment to the business. When committed fully, employees are more willing to make a discretionary effort to go above and beyond the minimum that’s required.

Has total rewards optimization been overlooked?

Yes, until recently. In the past, employers typically started from a compensation and benefit standpoint, which addressed foundational and some performance rewards. However, they developed and managed the various components as very separate programs. Today, more companies recognize the power of blending these reward programs and looking for ways to reinforce the overall total rewards deal.

CHROs and CFOs know they have one pool of money to spend on all aspects of total rewards — health care and retirement benefits, job training and base pay increases. With limited dollars, they’re trying to figure out how to get the biggest bang for their buck. The challenge is to offer the right deal to the right employees — a deal that will keep top-priority workers highly engaged — within the confines of the company’s fiscal constraints.

In putting together a total rewards optimization (TRO) program, how should employers begin?

Start by looking at what you have in place and how you spend your dollars, and determining whether that’s competitive against companies with which you compete for talent.

Next, understand your employees’ preferences and use employee surveys with conjoint analysis to determine which rewards have the biggest impact on employee attitudes and behavior.  Segment your work force and ask employees in each segment what they want and what they’re willing to trade off. For example, if you can spend $100, would employees rather have a lower health care deductible or a better training and development program? Or more base pay or a better retirement program?

Based on that feedback, you can look to shift your investments among programs (i.e., portfolio optimization) to create total reward portfolios that deliver the highest return. The goal is to invest finite reward dollars across the work force in a way that balances organizational and employee interests creating the highest possible perceived value at the most economical level.

For instance, if employees say lower health care costs are more important to them than the retirement program, explore the opportunity to invest more in health care programs if you reduce your 401(k) match. If so, employees will be more engaged with that deal, because you tried to construct a total rewards program in light of their wants and needs.

Rebalance your allocation, and make trade-offs you can live with. You’re not going to eliminate your 401(k) plan, but maybe you can spend less there to better invest in areas your employees value more.

How do employers determine whether the total rewards optimization program is succeeding?

After a year or two with the new program in place, you should assess its effectiveness. This is an ongoing part of an effective total rewards strategy.  Be sure to check with employees. Do people feel better about their jobs and about what’s going on in the company? If you were trying to address unwanted turnover, look at the hard metrics. If you formerly had 8 percent turnover and now have 4 percent, clearly what you’ve done is working. If you were looking to save money, did you do so at the expense of reduced engagement?

The issue isn’t only about deciding whether to spend more or less in total. The real questions are whether you know what your employees value, and whether you can adjust your total rewards investments accordingly. You don’t have to do it all at once in a full-scale redesign. Many employers do it in steps and focus on big-ticket programs or areas that earn the least employee value.

Josh Strok is Director, Rewards, Talent and Communication at Towers Watson. Reach him at [email protected] or (818) 623-4577.

Insights Human Capital Solutions is brought to you by Towers Watson

How building a scalable infrastructure can help energy companies prepare for an IPO

Alyssa Martin, CPA, MBA, Executive Partner in Advisory Services, Weaver

Although energy executives can’t control some factors that influence the IPO market — like economic conditions, global turmoil and interest rate changes — they certainly have the power to ensure their company’s readiness for the big event. Creating a scalable infrastructure well before a public offering not only helps private companies manage growth and thrive in a highly regulated environment, but it also ensures a smooth transition by imposing a diligent, sequential preparation regimen.

“Building a strong, scalable infrastructure helps private energy companies handle the growth that accompanies public registration in a well-managed, compliant fashion,” says Alyssa Martin, executive partner in advisory services at Weaver.

Smart Business spoke with Martin about the steps executives should take to proactively prepare their private energy company for an IPO.

Why is creating a scalable infrastructure the top priority?

You’ll crash if you try to build the airplane once you’ve left the ground, so energy executives need to proactively prepare their company for future growth by uniting people, process and technology to create a scalable infrastructure. Of course, it’s important to assemble an upper and middle management team of veterans with energy experience and public company expertise, but preparing for the event in an organized manner is vital, particularly in private companies that may have limited staff and resources. Otherwise, your team can become overwhelmed with trying to juggle their regular duties with a hefty list of complex, pre-IPO tasks.

A best practice is for senior management to create a roadmap to shepherd their staff through the daunting IPO preparation process, as well as enhance the private company foundation to become a company that is publicly fit.

What are the first steps in the IPO preparation process?

Start by enhancing your financial reporting capabilities so you understand the key critical risks and key performance indicators that drive the business. Timely, accurate and usable financial reports allow you to make informed business decisions, meet shareholder expectations and prepare accurate disclosure statements. In addition,  the data will help you analyze trends and craft a strategy so you’re ready to answer questions from underwriters, attorneys and auditors.

These experts want to hear the story behind the numbers, including a description of the factors that drive the business up and down. They also want assurances that the company has the necessary procedures to comply with the regulations imposed on public companies.

Creating robust procedures is the next step because they emanate from the financial reporting system. The procedures will help you spot and report changes in control and material contracts, since public companies must demonstrate that they can comply with SEC reporting rules and stay ahead of disclosure requirements by creating a warning system that alerts them to reportable activities.

Once you have enhanced the financial reporting process and created robust procedures, its time to undergo a comprehensive risk assessment. A facilitated risk assessment not only helps your company comply with regulations like Sarbanes-Oxley, the risk analysis and response plan also allows your team to view the entire risk portfolio, agree on the priorities, and tackle mitigation and other related tasks in a logical manner.

It’s important not to overload employees during the IPO preparation or the early stages of implementing public company standards, since people can only initiate and absorb so much change at once.

How can private companies prepare for an IPO by instituting corporate governance practices?

Using external consultants to assess risk, conduct gap analysis and implement procedures helps private energy companies evolve from being lean, internally driven organizations to substantial, regulatory-driven public companies. Policies tend to be unstructured and undocumented in private energy firms, but internal audit consultants working under the direction of an audit committee can help institute written procedures and documentation guidelines.

This provides employees with a chance to form new habits and comply with governance practices well before an IPO.

How can private companies strengthen internal controls and IT systems?

In private companies, risk is usually managed at the process level based on comfort with the employee base. In public companies, it must be managed at the enterprise level first and then balanced through controls at the process level to comply with the strict guidelines for business operations and Section 404 financial reporting requirements.

Accordingly, it can take 12 to 24 months and a hefty financial investment for private companies to adequately strengthen their internal controls and IT systems to meet public company standards. Have internal audit consultants assess your internal controls, highlight areas of potential risk and provide recommendations for improvement. Then start early, so your IT staff has the bandwidth to implement the required changes while performing their regular duties.

Finally, facilitate a smooth transition by building control components into each step as you navigate the public company requirements.

Do you have any other tips to help energy executives prepare for an IPO?

Seek outside assistance and guidance before embarking on the journey from private to public status. External consulting experts who have travelled the path and understand your industry can help you navigate the process and reduce the chances of a false start. Prevent errors, costly rework and stress by tackling each step in the process logically and sequentially.

Finally, create a scalable infrastructure so your company is ready to handle the growth that accompanies public status.

Alyssa Martin, CPA, MBA, is an executive partner in advisory services at Weaver. Reach her at [email protected] or (972) 448-6975.

Insights Accounting is brought to you by Weaver

The price of procrastination when planning for retirement

Robert A. Valente, CEO and Managing Member, RAV Financial Services

Fifteen months ago RAV Financial Services, LLC decided to provide our readers with timely insights and strategies to maximize your business growth potential and increase your overall net worth. During this time frame, we all have been bombarded by many headlines both domestic and abroad that may have distracted our focus on our journey towards financial success and ultimate life-plan significance:

  • U.S. economy sees the worst downturn since the Great Depression
  • Foreclosures hit record levels
  • U.S. deficits are out of control
  • Global terrorism on the rise
  • Afghan war now the longest in U.S. history
  • European debt crisis threatens economic recovery
  • Gas hits $4 per gallon and still rising
  • The U.S. political climate is bitter and straining the possibility of cooperation between parties

These are just a few of the stories that have caused consumers to remain “frozen” in the headlines. We have become so ingrained in the negativity around the globe, that we have remained stationary and have abandoned the issues that are “close to home”: to create and implement a successful strategic retirement plan.

Too often bad news reminds us that the “glass is half empty, not half full.” Other times we become angry, lamenting that we have no control over external events. Regardless of the environment, it may be appropriate to accept the events around you, and begin a plan to adjust and adapt to the “cards you have been dealt.” Next, focus on the things you can control as you build your retirement strategy. Individuals and businesses don’t plan to fail, they fail to plan. When a plan is non-existent, fear is created and magnifies what can go wrong. I learned a new definition a while ago about FEAR: false experiences appearing real. Fear immobilizes us and reminds us all of what Franklin D. Roosevelt said: “The only thing we have to fear is fear itself.” Emotional planning and knee-jerk reactions to short-term events can be dangerous to your long-term wealth.  A well-thought-out plan with your trusted advisor and wealth manager can help you crystallize the vision in your life-plan.

So what other statistics are increasing the difficulty of reaching retirement nirvana?

  • According to a recent poll conducted by Americans for Secure Retirement, 88% of all Americans are worried about “maintaining a comfortable standard of living in retirement.”
  • On January 1, 2011, the very first Baby Boomers started to retire. For almost the next 20 years, more than 10,000 Baby Boomers will be retiring every single day.
  • According to one recent survey, 74% of American workers expect to continue working once they are “retired.”
  • A recent AARP survey of Baby Boomers indicated 40% of them plan to work “until they drop.”
  • Per the Congressional Budget Office, the Social Security system paid out more in benefits than it received in payroll taxes in 2010. That was not supposed to happen until at least 2016. Sadly, in the years ahead, these “Social Security deficits” are scheduled to become absolutely nightmarish as hordes of Baby Boomers retire.
  • In 1950, each retiree’s Social Security benefit was paid for by 16. U.S. workers. According to new data from the U.S. Bureau of Labor Statistics, there are now only 1.75 full-time private sector workers for each person that is receiving Social Security benefits in the United States.
  • According to a survey by, 36% of all Americans say that they don’t contribute anything at all to retirement savings. (1)

In an article written by Michael Cohn, Small Biz Owners Not Prepared for Retirement, Cohn refers to a survey conducted by the American College:

“The survey, by the American College, a nonprofit educational institution devoted to financial services, found that while 66% of the women and 70% of the men said they had developed an estimate of their retirement needs, only half of these individuals have done so with the assistance of a financial professional.

Even for the small business owners who have calculated their retirement goals, most do not have a formal plan to achieve their financial objectives. Among the small business owners surveyed, 77% of the women and 74% of the men have no written plan for retirement.

Cost of living is a major issue for many small business owners planning for retirement. The main concerns of roughly four in 10 of the small business owners surveyed were increases in the cost of living, higher health care costs, and the ability to maintain their current quality of life.

While just over half of the small business owners who were surveyed reported being concerned about maximizing the value of their business to help fund retirement, only 10% of the women and 20% of the men polled had a written plan to transition their business upon retirement.”

There are many more examples in the media of individuals procrastinating to begin their retirement planning. Let’s get started in a serious commitment to get your retirement planning underway. The first thing is to do some homework. Create your personal current income and expense sheet. We’ll use that in my next article to examine what information is unveiled to you as you examine where money comes from and where it goes today. Remember, when you’re retired, how will that income/expense picture change. We’ll elaborate on that more next month.

In the meantime, I wish you financial well-being and comfort during these taxing times.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC. He can be reached at [email protected]

(1) Excerpts from “The Economic Collapse : Are You Prepared For The Coming Economic Collapse And The Next Great Depression?” November 23rd, 2011

Insights Wealth Management is brought to you by RAV Financial Services LLC

Managed IT services that deliver ROI

Zack Schuler, Founder and CEO, Cal Net Technology Group

Over the last several years, the term “managed services” has become more prevalent in the IT services community. It’s how many companies these days are consuming IT services, especially those companies who don’t have the need or the budget for a full-time IT department. In its most basic sense, managed service delivery is the utilization of remote tools in which an IT service company can remotely manage and support a client’s IT environment.

These tools allow the remote monitoring, patching, upgrading and support of a client’s servers, workstations, and network devices. These services are usually priced on a “per device/per month” model, with the idea that a network can be maintained for a “fixed fee” per month.

“There are distinct advantages to this IT service delivery model, both to the IT company as well as to the client,” says Zack Schuler, founder and CEO of Cal Net Technology Group. “First, from the IT company’s perspective, they can automate most of the routine tasks that are associated with maintaining a computing environment. These remote management tools have many automated processes that can be turned on, thus saving the IT company time and money.”

Smart Business spoke to Schuler about how to get the most from using managed services for IT.

How do businesses benefit from managed services?

From the client’s perspective, there are advantages as well. First, this service delivery model helps clients manage their IT budgets a bit more closely, as many of the services are delivered on a fixed fee. This adds predictability to the ongoing cost of IT. Next, if the IT company has perfected their own processes around these tools, the ‘human error’ factor of manual maintenance goes away. For both parties, the benefits of automating what can be automated can be realized.

With all of the benefits to managed services, if a company looks at it as their only answer to IT services, they are doing themselves a huge disservice. While managed services might be the answer to basic maintenance of the system, it neglects helping companies to truly drive value out of their IT resources. Managed services, when pitched as the solution, put consumers in a highly commoditized mindset. IT services as a whole should not be viewed as commodity services, since these services, if delivered correctly, can add serious bottom line advantages to the business.

How can businesses ensure these services are effective?

A less known term in the industry is ‘blended services.’ This term is less known because I made it up myself within the last year. Blended services are a strategic combination of managed services and professional services that are packaged together to deliver the ultimate amount of value to the customer. This consists of looking hard at those services that can take advantage of remote tool sets and automation, and subsequently injecting intellectual capital into every other facet of IT that cannot be automated.

Part of blended services consist of pre-scheduled on-site consulting time. The face-to-face interaction that occurs during this time is invaluable to the business. It is during this time that questions like, ‘What is the best way to do such and such on my computer?’ or ‘What application can solve this business process issue that we have?’ are more likely to get answered. Internally, we use the term ‘walk-by.’ This is when a consultant from our firm is on-site and is walking by an employee of the company and they are stopped in their tracks to answer what are sometimes very important questions. It is this face-to-face interaction that leads to new efficiencies being discovered, and people at the company ultimately being more productive at their job.

If services are delivered 100 percent remotely, the chances of a person picking up the phone, and calling a relative stranger on the other end of the line to ask about the best way to do something, is slim. Those phone calls are rarely received. It takes face-to-face time and a relationship that’s been developed for people to really be able to work well together, and for the partnership to be just that — a partnership.

How can executives be sure they derive value from managed services?

All of this also takes some commitment from the management of the business. They need to see the value in IT and it’s effectiveness as a bottom line tool. Far too many executives at companies have traditionally been ‘technophobes’ and view IT strictly as overhead, a necessary evil, as opposed to a bottom-line boosting critical part of the business. Luckily as time goes on, this is happening less and less, as IT is being taken more seriously every year. In short, when consuming IT services, make sure that you are as equally engaged as your service provider.

My advice is to make sure that you see past the commoditized services that are being sold to you, and that you ask your IT company to do more and to prove their real value to you. Assuming you are paired up with the right organization, they will be able to help you take your company to the next level. This might cost more in the very short run, but in the not too distant future, the ROI will be there.

Zack Schuler is founder and CEO of Cal Net Technology Group. Reach him at [email protected]

Insights Technology is brought to you by Cal Net Technology Group

How to attract new customers and boost the bottom line through merchant services

Lynne Duke, Vice President, Merchant Services Manager, California Bank & Trust

As if competing against corporate America and big box retailers weren’t enough of a challenge, smaller merchants have to contend with tectonic shifts in the way consumers shop and pay for goods and services.

For instance, e-commerce wasn’t a factor just 10 years ago, but in 2011, U.S. online sales reached $194.3 billion according to the Commerce Department, and more than 90 percent of online transactions are paid by credit or debit card. Gift cards are the latest craze, according to First Data’s “2011 U.S. Gift Card Consumer Insight Study.” So merchants need to stay abreast of the latest and greatest in technology to support their revenue goals.

“Offering customers multiple payment channels opens up new sales opportunities, and, best of all, merchant services provides the ability to increase revenue without investing in additional staff, technology or brick and mortar,” says Lynne Duke, vice president and merchant services manager for California Bank & Trust.

Smart Business spoke with Duke about the opportunity to cost-effectively attract new customers through merchant services.

How has merchant services evolved to meet shifting customer preferences?

When credit and charge cards became popular during the 1950s, retailers needed a way to accommodate their customers and provide payment alternatives, so merchant services was born. Over time, both the services and technology have evolved due to changes in customer buying habits and preferences. Today, even the smallest merchant can compete against giant e-tailers by giving customers the ability to buy products online; purchase, redeem and reload cards; and even use a smart phone or tablet app to pay for goods and services.

How can merchant services improve the customer experience and help small retailers compete?

Providing customers with every possible purchase or payment option increases customer convenience and satisfaction.  This will make it more likely that they’ll be a return customer. Many customers prefer to shop online or avoid credit card debt by paying with a check or debit card, so by providing these payment options you’ll help ensure prosperity.

How do merchant services help boost the bottom line?

Business of all sizes are now able to cost effectively sell their products and services across the globe. The only requirement is to have a merchant account with Web access and online processing. In today’s market, there is  no need to invest in pricey point-of-sale systems when you can easily transact business 24/7 by accessing a virtual terminal via a personal computer. If a customer requires mobile processing for events such as fairs and art shows, wireless terminals and technology support those venues.

Which merchant services are most helpful?

Merchant services provides solutions to meet business needs for many industries, and helps level the playing field between small and large merchants by providing several benefits:

ν Robust online reporting: Provides a real-time view of sales transactions and detail for customized reporting, transaction analysis and trend monitoring.

ν Online gateway/virtual terminal: Eliminates boundaries by allowing customers to complete secure online transactions using any major credit or debit card. A virtual terminal provides the best solution for the ‘card not present’ environment.

ν Wireless solutions: Accept credit card payments and print receipts at trade shows, farmer’s markets and other remote venues through a wireless credit card processing machine. Smart phones are entering the race and provide another avenue for payment processing.

What should merchants consider when selecting a provider?

The industry is very competitive with a mostly generic product offering; however, pricing strategies for merchant services are complex and vary dramatically by provider. Consequently, merchants need to scrutinize proposals, review pricing components, calculate the effective rate and estimate the bottom line impact of each pricing model before selecting a provider. For instance, the options available today are bundled, tiered or pass through. Each includes a per-item fee and a discount rate. Each price plan carries its own pros and cons. Always be vigilant about hidden charges and know exactly how much you’ll be paying each month for merchant services before you sign a contract.

Service levels and reliability also vary by provider. Surprisingly, some of the biggest processors actually have the least favorable service. Will someone be there to take your call 24/7? Will you be talking to a bank employee or an offshore representative? How quickly will they respond to equipment failures? Ask to see a copy of the provider’s service level agreement, and make sure the provider has a solid reputation in the marketplace, because success abounds when you partner with a trustworthy merchant services provider.

Lynne Duke is vice president and merchant services manager for California Bank & Trust. Reach her at [email protected] or (619) 446-2240.

Insights Banking & Finance is brought to you by California Bank & Trust

Don’t get caught off guard by a wrongful termination claim

Andy Wolfe, Partner, Ropers Majeski Kohn & Bentley PC

Wrongful termination claims are far and away the number one lawsuit against employers. Even if you feel that you are justified in firing an employee, you may find yourself on trial.

“In California, it often seems like it’s open season on employers,” says Andy Wolfe, partner at Ropers Majeski Kohn & Bentley PC. “It’s not only the most frequent source of litigation, but it’s also the kind of litigation that causes the greatest potential exposure to liability.”

So how can you protect yourself when you are warranted in terminating an employee?

Wolfe explained to Smart Business how to ensure a smooth separation when a worker is released from employment.

What types of claims can be made against an employer for wrongful termination?

Basically, there are two kinds of claims. The first and the most common is a claim that firing a worker violates an established public policy. Good examples are discrimination claims and claims of retaliation – where an employee is claiming he or she was fired for exercising an employment right. In addition to violation of public policy claims, employees can also assert that they were fired in violation of a contract or agreement that they had with their employer.

How can employers best protect themselves from these types of lawsuits?

There are a number of things that can be done to reduce the risk of a costly lawsuit. The first is to be very clear about the rationale for the termination. Was this termination a layoff? Was this person terminated for unsatisfactory performance or misconduct? Once you have clearly thought through the rationale for the termination, the next question is whether or not the employee’s personnel record supports that rationale. Are there clear performance standards? Have there been performance evaluations that are timely and consistent with the rationale?  Have similar employees been treated in a similar way?  Another thing to consider is the length of service: the longer the employee has been working for your company, the more you will have a duty of loyalty to the employee in the eyes of a jury. And the longer an employee has been around, the stronger the rationale must be for terminating that employee.

After that, you should do a very careful risk assessment. In litigation, the truth is not enough. In a court room, the real question is, ‘What can the decision to fire this employee be made to look like in the eyes of a jury?’ Look for warning signs from the employee. Has the employee recently requested to take leave, or made reference to health issues? Has he or she made work-related complaints? Is this a team player or a person who is always looking out for number one? As a general rule of thumb, you should be aware that the higher the level of compensation the employee has, the greater the risk that the employee will bring suit if fired.

It is always a good idea to get a second opinion on the decision to fire an employee, particularly if the decision-maker is the employee’s immediate supervisor. If you decide to fire the employee, it’s smart to have a well-planned termination meeting attended by two or more employer representatives, who present a clear and succinct statement of the reason for the termination, and follow a checklist that includes final pay, written notice of the change of employee’s status, information about unemployment insurance benefits, and a plan for the return of company property.

What should an employer do if the risk of a lawsuit is too high?

In the great majority of cases, the best course of action is to enter into a separation agreement with the employee rather than just firing that employee. It might take a little more time and cost a little more to reach such an agreement, but what the employer gets in return is finality.  The reason is that in exchange for whatever you offer to the employee, you get back a comprehensive release of claims. Then you can sleep at night knowing that once the agreement is reached, this separation is not going to come back and haunt you later.

What are some forms of compensation an employer can offer in a separation agreement?

One of the good things about doing a separation agreement is that a number of things you can offer are not monetary, such as a letter of reference or putting the employee on unpaid leave status.  Sometimes, at little or no cost to you, there can be negotiations allowing the employee to keep company property, such as laptops, cell phones, or even automobiles. Sometimes offering the employee post-employment work as an independent contractor is in your best interest. An agreement not to contest unemployment insurance may also be helpful. And, of course, there are also opportunities to negotiate regarding continued benefits and severance.

Separation agreements are usually a genuine win-win. You avoid the risk of being socked with a wrongful termination lawsuit, and the employee gets to leave with dignity and the opportunity to focus on the future in a constructive way. Not only is it good business economically for an employer to do this, but it’s also an opportunity to the employer to deal with a difficult situation in a way that is much more comfortable and dignified.  Most employers hate to fire people. But negotiating a separation agreement, they find, gives them an opportunity to implement a termination in a cooperative and considerate manner, one that works better for everyone.

Andy Wolfe is a partner with Ropers Majeski Kohn & Bentley PC. Contact him at (415) 972-6352 or [email protected]

Insights Legal Affairs is brought to you by Ropers Majeski Kohn & Bentley PC

Answers to frequently asked questions about whether aerobic exercise is really good for you

Joshua Trentine, President, Overload Fitness

Joshua Trentine, president of Overload Fitness, is letting us in on a fitness secret.

“Aerobic activity is not the most effective activity for fat loss. Steady state activities such as running, cycling, dancing, etc. do not burn a significant number of calories,” he says. “One pound of fat can fuel the body for up to 10 hours of continuous activity. ‘Aerobic’ activity is simply inefficient for this purpose.”

The most important contribution that exercise makes to a fat-loss program is the maintenance of muscle tissue while fat is lost. Strength training is the only reliable method of maintaining muscle tissue.

“Aerobics can actually cause you to lose muscle tissue,” Trentine says.

Smart Business spoke to Trentine about what you need to know before you jump back on the treadmill.

So why do people focus so much on aerobics?

Some supposed ‘experts’ have suggested that the important effect of aerobics is that of increasing metabolic rate. Our question is this: If ‘aerobic’ activities burn few calories while you are doing them, then how many calories will they burn when you are not doing them? The answer to that question: very few.

Every pound of muscle added to the body of an adult female will require an additional 75-100 calories per day just to keep it alive. The average person, through a program of proper strength training can add enough muscle to burn an additional 3500 calories per week (1 lb. of fat = 3500 calories). The amount of strength training required to effect such a change is less than one hour per week.

Don’t we need some form of aerobics to ensure good health? What about my heart?

Remember, the function of the cardiovascular system is to support the muscular system — not the other way around. Increases in muscular strength (from a proper strength-training program) will correlate to improvements in cardiovascular function.

You will notice that the word ‘aerobic’ has been set off in quotation marks when it refers to an activity performed for exercise. There is a good reason for this emphasis: There is no such thing as aerobic exercise! We have all heard that activities such as jogging and cycling are ‘aerobic’ while those such as weight training and sprinting are ‘anaerobic.’ These distinctions are not 100 percent correct. The words aerobic and anaerobic refer to metabolic pathways, which operate continuously at all times and in all activities. You cannot ‘turn off’ either of these pathways by merely increasing or decreasing the intensity of an activity.

Few of the ‘experts’ who promote aerobics will debate our last statement. What they do say, however, is that gentle low-intensity activities use the aerobic pathway to a greater degree than they use the anaerobic pathway. We agree with this statement completely and feel that it should be taken to its logical conclusion: The most ‘aerobic’ activity that a human being can engage in is sleeping.

Elevated heart rate, labored breathing and profuse sweating are not indicators of exercise intensity, exercise effect, or exercise value. Intense emotional experiences commonly cause these symptoms without a shred of exercise benefit.

Why can’t I weight train and do ‘aerobics’ activities that I enjoy?

‘Aerobics’ activities are dangerous! Running is an extremely high-force activity that is damaging to knees, hips and back. Aerobics dance is probably worse. And so called ‘low impact’ classes or activities like stationary cycling are not necessarily low force. Don’t be fooled by the genetic exceptions who protest that they have never been injured — overuse injuries are cumulative and we are often not aware that we have them until it is too late. In time, the enthusiastic aerobics-dance participant or jogger will probably pay the price for all that ‘healthy’ activity — a decrease or loss of mobility in one’s later years.

Exercise destroys the body. The body, being dynamic, responds to this stress by recovering and making it stronger. If we don’t give our bodies enough time to recover from a workout, we’ll never make any progress. By performing activities on your off days, you compromise the progress you could be making. That is not to say you should avoid doing anything, but don’t waste time and recovery resources doing ‘aerobics.’

According to Rick Sharp, PhD., the director of Sports Science and Medicine for the U.S. Olympic Swimming Team, ‘endurance’ training may use up more protein than previously thought, leaving less to build muscles. ‘Aerobics’ exercise compromises muscle gain.

What about low-impact alternatives like walking, or certain machines?

The term ‘low-impact’ is a marketing farce. The machines and activities may in fact be low impact, but they are rarely low-force. You cannot avoid all force in physical activity, of course. But, why subject yourself to it when it is entirely unnecessary?

What about endurance? Won’t my athletic performance suffer if I don’t do aerobics?

Endurance is primarily a result of three factors: skill, muscular strength and genetics. Heritable factors (genetics) are considered to be non-trainable or, in other words, you cannot do much about them. Increasing one’s skill in an activity is a result of practicing that activity. For long-distance runners, skills such as stride length and efficiency can be trained through practice (practice on a treadmill doesn’t serve this purpose as it is not the same as road-running). Muscular strength is the single most trainable factor in endurance performance. It is the muscles that actually perform work. When strength increases, the relative intensity of any given task decreases.

Our bodies’ ability to use oxygen is not as trainable as once believed. Even with some compromise of pulmonary function (illness, injury, etc.) the lungs can usually perform their job quite adequately. It is the muscle’s ability to use the nutrients delivered to it that needs training. This is most efficiently addressed by strength training.

Joshua Trentine is president of Overload Fitness. Reach him at (216) 292-7569 and visit

Insights Health & Fitness is brought to you by Overload Fitness

How to find the best candidates when the competition among employers is tough

Jacque Myers, Senior Recruiter, Engineering Services, The Daniel Group

The last thing you want to do in a tight labor market is hire the wrong employees just to fill empty slots. Planning for staffing needs in advance is imperative to the process, however, in some labor markets, all the planning in the world won’t make a difference if growth explodes beyond expectations.

“That is what has happened here in Texas,” says Jacque Myers, senior recruiter, Engineering Services, with The Daniel Group. “Employers began planning for a tight labor market three to six months ago. But no one realized how rapid growth would take hold. There is extreme need in certain categories, especially in oil and gas.”

Myers says that the local job market should also brace for a very high percentage of turnover among professionals, engineers in particular, during 2012. “Now is definitely the time to get ready,” she notes.

Smart Business asked Myers for tips on how employers can deal with the tight labor market.

Who internally should be involved with identifying the best candidates?

The first answer that usually comes to mind is HR. However, keep in mind that the HR staff is busy with HR functions such as employee benefits, payroll, keeping up with labor laws, etc. It takes time and expertise to source candidates. Your HR personnel may be adept at certain functions of recruiting, however performing a search encompasses much more than that and can be very resource intensive.

How can companies identify highly qualified candidates?

There is no better way than to receive a referral from an existing employee. A trusted employee is not going to give you a bad referral — they don’t want to tarnish their name unless they are positive about the person. Networking is another way to meet good candidates. It’s also an opportunity to observe how candidates interact with others on a professional basis.

Another way to identify candidates is to have a recruiter approach individuals that may be working for one of your competitors or working in an industry closely related to yours. Staffing agencies work with internal databases and have access to many other avenues, such as multiple job boards, and attend expos and after-hour functions, which can be helpful for some of our national searches. Our firm employs individuals that pre-screen candidates every day, all day to keep our database fresh with qualified individuals.

In what situations might it make sense to work with a recruiting firm?

In addition to the most common reason, which is to get good qualified candidates in front of the hiring manager quickly, there are other instances where it can make sense. Perhaps there is a specific person you want to reach out to and a third-party recruiter would be the best person to handle that. This is true especially if the potential candidate is working for a competitor.

What if there is a very specific hiring need?

In that case, you may want to consider a retained search, which is a highly specialized search, mostly for C-level positions. Or maybe you need to locate a job candidate in a very specific region. These types of searches are fairly intensive because the outside firm will devote one person exclusively to your search. The firm will usually ask for a deposit in advance to cover the recruiter’s time. In this situation, the recruiter should report back to you every day, or every other day, regarding their progress.  In most cases, this particular scenario has been very effective in finding a qualified candidate for the client.

How can a company narrow down to the most attractive candidates?

You have to determine if there will be a good cultural fit. It’s easy to devise a written job description, but that’s only 50 percent of the equation. Are you a small group? Do you need someone who will be self-motivated sitting off in a corner? Or do you want a type-A personality? Often the hiring manager is the only person who can accurately answer these questions. Other important factors to consider are job tenure, education and location. The recruiter will often know you and your culture extremely well by the end of a placement.

Any tips for ‘closing the deal’?

Try to get to know the candidate as well as you can before you make the offer. If they are working, why do they want to leave their current job? What are their motivating factors? Do they want more money, more job satisfaction, a better location? What is important to them? What do they want? If it’s more money, you can usually provide for that. But what about their family — will they need help relocating? Does the candidate want to go back to school? Are they pursuing other interests? Ask if the candidate is entertaining other offers. If so, ask ‘what can that company give you that I can’t?’ There are all kinds of things you can offer, such as more vacation time, tuition reimbursement, or a flexible schedule. You can even adjust job titles. Make sure to rule out any barriers before any negotiations or offer letters may be on the table.

JACQUE MYERS is senior recruiter, Engineering Services, with The Daniel Group. Reach her at [email protected] or (713) 932-9313.

Insights Staffing is brought to you by The Daniel Group