Business Advice Daily

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by David Purcell

Owners are proud of their family owned businesses. To be successful, owners must plan thoroughly and work hard to carry out the plan. Successful business owners should be proud of their accomplishments.

Yet planning and hard work are frequently lacking in efforts to establish a viable blueprint for leaving the business behind. Reluctance to pursue proper succession planning is common. Combining family and business concerns is difficult.

If a proper estate plan is not in place, estate taxes must be paid within nine months of death. This does not give heirs a great deal of time to maneuver. Irreparable harm could result. Part or all of the business may have to be sold in order to pay estate taxes.

In a recent article by Diane E. Picard on the Financial Planning Interactive website, Gary Pittsford, a CFP in Indianapolis, recommends having a plan in place five years before the owner plans to exit the business. However, Martin M. Shenkman, an attorney and CPA, recommends creating a succession plan as soon as a business is started. Shenkman’s position considers that a false step into the path of an oncoming bus could rapidly accelerate the need for a succession plan. He has a point.

In fact, the best succession plan is basically an exit plan, and should be an integral part of a business plan. It should cover all possible eventualities of the business if it had to be turned over to someone else. This exit strategy should address retirement, death, disability, sale of the business, and any other possibilities that might impact the situation.

The succession plan should include life and disability insurance to ensure business operation if the owner dies or becomes disabled. Other strategies, such as an Employee Stock Ownership Plan (ESOP) or business alliances, could provide operating capital or management in extreme circumstances. The details of how the business should be sold or liquidated, if that becomes necessary, should be included.

According to Shenkman, the liquidation or selling option is frequently overlooked. Parent-owners often fail to consider that the children might prefer capital to pursue their own ambitions, rather than the mantle of family business manager.

Dealing with family succession can be more difficult than creating a business plan. Emotions come into play. Problems in family relationships impact planning. Reluctance to confront these problems openly is common.

Children might not want to take over a parent’s business. Siblings may disagree over who should run the business.

In her article, Picard quotes Roy Ballantine, a financial planner in New Hampshire, who stresses that business goals, values and objectives should be the controlling factors in business decisions, not kinship.

Owners are often reluctant to consider liquidation or sale of the business, even if the children are not interested in taking over. But sale or liquidation may be the best choice.

Some useful questions when considering a succession plan are:

* How many children have shown the desire to run the business?

* How many children actually are capable of running the business?

* Which child should be in charge if more than one is willing and able?

* What family problems might arise should the choice for leader actually succeed to that position?

* If only some of the children are interested and capable in managing the company, how will the other children be compensated in the estate plan?

* Should in-laws be considered in the succession mix?

* How should the transition take place while the owner remains capable and active?

* Are there other choices, such as a temporary or “bridge” manager, a current employee, a non-relative, or another entire business that might become the business manager?

* What is the best alternative and the priority for all alternatives in case of an unexpected disability or death of the owner?

Financial and estate planners underscore the need for open communication and family meetings in succession planning. Strategies, such as generation skipping and gifting, should be considered. Finance, corporate, tax and estate planning laws are all part of the succession equation.

Answering the basic questions, reviewing the alternatives and their impact, and a continuing dialogue among family members are crucial components in a plan for succession. With appropriate guidance, a business owner can create an effective succession plan to keep the family together and maximize the probability of continued business success.

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by Matt Berkley

Here’s a quick heads-up for new business owners. Deciding all the ins and outs of your business insurance policy needn’t keep you up nights. Educating yourself on the basics and finding a skilled agent will give your company the edge it needs.

Sign With An Agent You Trust. The importance of finding a good insurance agent can’t be overstated, especially one who knows your specific industry and has the experience. A quality agent will lay all the important cards on the table and guide you through murky waters. Your life as a business owner will be that much easier knowing that the right person is guarding your flank. “Make sure to get a solid, reputable agent who you know you can count on for good advice, not just at renewal time or when you initially buy the coverage, but throughout the year as questions come up,” says Pat Reilly, assistant vice president with International Placement Services, Inc., national governor elect and former president of the St. Louis CPCU chapter.

“Business insurance isn’t something to be lightly handled over the phone,” notes Brooke Miller, of Brooke Miller State Farm. “You need an agent who’ll go out and look at the business and see if there are exposures a business owner might not be aware of, things that might not be covered if they didn’t add it to their policy.”

Do Your Homework. Reilly includes the following tips for ensuring the right coverage:

* Compile a comprehensive inventory of all your businesses equipment/assets.

* Weigh what your perceived risks are.

* Consider umbrella coverage. At the least, get a quote for excess liability.

* On the general liability side, only buy limits you’re comfortable with.

You Get What You Pay For. The bottom line is always a front line concern for entrepreneurs. Typically, most business owners will gravitate towards the lowest price available in terms of coverage, notes Mike LeBlanc, owner of Mike LeBlanc Insurance. “Business owners get focused on price as opposed to value,” he says, “but there’s no doubt that cheap insurance is just that: cheap.” By talking to their agents or doing some investigating, owners can ensure proper coverage for only a few dollars more each month.

Spot New Developments. Business insurance, by nature, is a conservative industry, but that’s not to say that the terrain goes unchanged. Maybe the newest offering will match your firm perfectly. LeBlanc explains that there are coverage items now available to small firms that for many years were only available to large employers. Endorsements, such as employment practices liability that covers employee harassment suits, have come down the funnel to be priced reasonably for small businesses.

Watch Your Classification. One common misstep is failing to classify your business appropriately, says Gary Teuscher, of Weiss Insurance. This is especially prevalent with new businesses. Insurance agents either make the mistake or intentionally misclassify businesses in order to get a quick commission under their belts. The real problem occurs a few months down the line when the insurance carrier inspects the business. Once the fraudulent classification is uncovered, businesses have only 30 days to establish a new policy.

Miller has seen too many business owners take a lackadaisical approach to their insurance until, that is, they actually need it. For those new to the game, her advice is for you to ask yourself the following:

* What do you want your business policy to do for you?

* What does it need to do for you?

* What do you really need?

* Are you overlooking something you need?

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Reprint and Repost Policy

General Liability

General liability insures a business against accidents and injuries on its premises, and exposures related to its products/services. For example, a visiting salesperson slips in your office and breaks an ankle. General liability covers the claim against you.

However, let’s say the business is a window manufacturer, with hundreds of its windows installed in homes and businesses. If something goes wrong with them—and this is the confusing part—that is not related to poor workmanship, general liability also covers the damage that results. Naturally, insurance companies don’t want to pay for sloppy work. As a result, general liability tends to be rife with exclusions to the point that some companies wonder why they have it.

* Property/Casualty

Most property insurance is written on an all-risk basis, as opposed to a named-peril basis. The latter offers coverage for specific perils spelled out in the policy. If your loss comes from a peril not named, then it isn’t covered.

Business owners should get a breakdown of what the coverage offers. Then, go the extra step and carefully review the policy’s exclusions. All policies cover loss by fire, but what about such crises as hailstorms and explosions? You may want to buy coverage for all these risks. Perils not covered by a typical policy include: earthquakes and landslides; nuclear contamination; flooding and water-seepage; and maintenance-related losses, such as wear-and-tear and pollution.

* Workers’ Compensation

Workers’ compensation is required by law in all states for businesses with five or more employees in Missouri. Each state says that employers are liable for all injuries to workers, regardless of fault. In exchange for this blanket coverage, workers give up the right to sue their employers, except in cases of extreme negligence.

One way to reduce workers’ compensation premiums is by reducing accidents. Even in office settings, injuries, such as carpal tunnel syndrome and slips and falls, can increase your premiums.

* Automobile

A business auto policy covers property and liability risks that can come with the ownership or use of cars and trucks. The primary strategy for saving money with auto insurance is increasing the deductible.

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by Peter Racen

Managing money is a lifetime challenge—one that can be made easier with planning. Retirement planning is especially important to ensure that those “golden years” are pleasurable and financially secure.

Traditionally, American’s have relied on the “three-legged stool” approach to income planning for retirement: Social Security, a company pension and personal savings. Not a bad strategy when all three “legs” can be relied upon. But, for many, one or more of those legs may be weak or missing altogether. The uncertain outlook for Social Security and traditional company-sponsored pension plans calls for a dramatic paradigm shift when it comes to planning for retirement.

In addition, the continued controversy as to how best to overhaul Social Security, some 97,000 pension plans in the U.S. were terminated between 1986 and 2003, leaving only about 32,500 plans remaining. The three-legged stool of retirement income is not as sturdy as it once was. Instead, a “pedestal” approach focusing on personal savings is becoming the safer, more reliable path to a secure retirement.

Building up personal savings and other assets is clearly more important now than ever. Yet, personal savings presents a different challenge because it involves saving income “left over” after meeting current financial obligations. And, the greater the number of years before retirement, the more difficult it is for some people to recognize their current need to save for it.

Additionally, there are multiple retirement savings and investment options to choose from. The most appropriate choices will be based on your particular situation. Some popular savings vehicles include investment products, such as IRAs, 401(k)s, self-employed plans and annuities. Permanent life insurance, in addition to providing an immediate source of funds to your survivors when you pass, may be another tool to help you enhance your income during your retirement years.

How Life Insurance Fits Into Retirement

As you look ahead to retirement, consider the role your life insurance will play in your overall financial plan. Retirement does not necessarily put an end to your need for life insurance, although it does mean that you should re-evaluate your insurance coverage.

If you are near retirement and still have dependents that would suffer a financial hardship if you die, you may want to continue or even increase your life insurance coverage. It can also provide for a number of estate planning needs that may exist or even afford you a cost-effective way to leave a legacy through charitable giving.

On the other hand, you may no longer have dependents or have amassed adequate resources to care for your survivors. If you don’t have any other financial goals that could be funded by your life insurance now or in the future, the amount of life insurance protection you need may lessen.

What, then, do you do with your whole life insurance policy? For starters, you may want to explore the “living benefits” that your policy’s cash value may offer. Here are several options:

* Keep the policy in force under a provision called “extended term.” Under this option, you pay no more premiums (thereby making those dollars available for other purposes) yet continue to be insured for the full policy amount. The policy’s accumulated cash value, in effect, pays the premiums for a specified amount of time, after which the insurance protection will end.

* Keep the policy in force indefinitely by converting it to a paid-up policy. You pay no more premiums, but the amount of insurance may be significantly reduced. The accumulated cash value remains intact so you retain the option of accessing it if necessary.

* “Annuitize” the policy by exchanging its accumulated cash value for a payment plan with the company. This option can provide a lifetime of income.

* Access the cash value through loans and/or by taking partial withdrawals or surrenders. A loan does reduce the death benefit and cash value of the policy. You also have the option of surrendering the policy outright to receive the total net cash value.

Each of the above alternatives can trigger different tax consequences so you should consult your tax advisor regarding your individual circumstances.

Indeed, it’s a good idea to analyze your retirement plan and supplement it where needed to meet your financial goals. Regardless of the type of life insurance policy you have, it is a good idea to review your coverage and options with your insurance representative on a regular basis and especially as you approach retirement age. This is one way to be sure your policy can continue meeting your needs throughout your working and nonworking years.

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by Matt Berkley

On the heels of its acquisition of Keystone, Truman Bank has expanded into uncharted waters. The bank has a strong foothold in its primary St. Louis County market. Tim Murphy, Truman’s chief credit officer, admits that he doesn’t pretend to know everything about his bank’s new territory. But this fall, he will be looking for a few professionals who do.

By early 2007, Murphy hopes to establish an official advisory board to extend the bank’s base of knowledge past its officers and board of directors. What he’s looking for, and what many other area banks are taking advantage of, are a few good counselors.

Who Are They?

A bank’s advisory board is typically a group of specially chosen local business owners who gather either monthly or quarterly to discuss matters pertaining to that bank and offer their opinions.

What Do They Do?

For the most part, advisory boards hold a mirror to the bank. “The board is there to provide us critical feedback on how we’re perceived out in the market. They’re really a set of eyes and ears for us,” says Michael Wamsganz, senior vice president with Heartland Bank.

The board is also helpful when it comes to matters such as marketing tactics, Wamsganz adds. “For things like billboards, TV and radio, the board is there as a sounding board for us to bounce ideas off of and help us build our strategy.”

Chris McCoy, senior vice president with Regions Bank, says “We really gauge how we conduct our business based on the kind of information the board gives us, which comes from their experience in dealing with the bank in their day-to-day business.”

Perhaps even more important than giving their feedback on the bank’s newest products, initiatives or strategies, is the board member’s unofficial role: salesperson.

A smart-looking billboard is impressive, but it’s nothing when compared to word-of-mouth advertising. In the banking world, referral is the name of the game. (Banks rely heavily on new prospects brought in by people such as its board members.)

What’s In It For Them?

Is it fame? Is it fortune? What do board members get for giving up their time and singing a bank’s praises? According to McCoy, the reasons vary. “Board members each have different reasons for being involved. Some simply appreciate the opportunity to be a part of the board. For some it’s the prestige to be considered that highly by the bank. And for others, it’s just an opportunity to interact with the other board members.”

Fred Berger, managing partner with Riezman Berger P.C., has been on Heartland Bank’s advisory board for over three years. One of the things he most appreciates about being a board member is the opportunity to contribute to Heartland’s success. He adds, “My experience as an advisory board member has given me insight into the business of banking, which helps in representing clients in financial matters.”

And, of course, referrals run on a two-way street. Wamsganz explains that when he runs into a client or prospect that needs a certain non-banking service, he basically becomes an extension of a board members shop, becoming a salesperson.

Who Are Prime Candidates?

Being a successful business person is a pre-requisite, but banks are discriminating on many levels when it comes to picking members. It’s really about what type of value the member can bring to the bank, says Wamsganz. You don’t want a board full of 20 accountants, he says. There has to be a balance of professions. “You need to look at the mixture of your board to make sure you have different talents and people with different convictions.”

It’s also important, Wamsganz notes, not to assemble a bunch of yes-men. “It’s critical that you have someone who’s engaged, willing to speak, and ready to let you know the truth. It may not always be the most positive information, but you need to find people who aren’t afraid to tell you what they really think.”

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by Edward Hempstead

Ready or not, here they come. America’s baby boomer generation—more than 78 million strong—is experiencing a new “coming of age” as the eldest of the baby boomers enter their 60s. While the age of Aquarius is giving way to retirement age, many are rethinking how they will spend their retirement years—and coming to grips with their long-term financial security.

The prospect of retirement for boomers is one that affects a considerable portion of America. In 2030, more than a quarter (26%) of the entire U.S. population will be aged 65 or older, compared with only 17% today. In addition to the sheer size of the group, these population projections get a boost from increasing life expectancies. Currently, a 65-year old man can expect to live to 81 and a woman of the same age is expected to live to 84.

Due, in part, to the fact that people are living longer and healthier lives, some 80% of boomers plan to work after retiring. In fact, the Bureau of Labor Statistics projects that the number of employed Americans ages 55 to 64 will increase by 51% between 2002 and 2012, while those ages 65 to 74 will increase by 48%. That means by 2012, about one in five American employees will be 55 or older.

Retirement Reality Check

As extended life expectancies change the rules of retirement, those in their 50s and 60s must “get real” about their financial futures, whether they intend to work or not. The question remains, “Will my nest egg last throughout my retirement years?” As most experts estimate that retirees typically need at least 70%-80% of their pre-retirement income for a secure retirement, statistics show that retiring Americans could use a financial reality check:

* Forty-four percent of Americans age 55 and older have saved less than $100,000, according to a Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI).

* Only 13% of these Americans have saved $250,000 or more; a discouraging 30% either didn’t know or refused to answer the question.

* While previous generations depended on pensions, only about 20% of workers have traditional pensions, and that number is decreasing.

* Health is unpredictable and medical expenses are not always covered by health insurance. An estimated 73% of older persons do not have sufficient income and assets to be able to withstand a long-term illness or disabling condition totaling $150,000 over three years.

* To top it off, the U.S. Department of Labor reports that the average American spends 18 years in retirement.

Funding Strategies

The good news is that boomers have options to help fund their retirement. First of all, continuing to work after age 65 can literally pay off. Those who retire at 65, work two days a week and earn 40% of their pre-retirement salary can increase their savings by 30% over five years.

It’s also encouraging that 85% of boomers participate in 401(k) plans, the highest participation rate of all age groups. The key is contributing as much as possible into such plans. Likewise, putting money into an Individual Retirement Account (IRA) may gain tax advantages and grow one’s nest egg, but it’s important to consult with a tax advisor for specific tax advice.

In addition, Social Security may still be a strong retirement tool. Even the most pessimistic forecasts predict full payouts through 2041. Using a combination of Social Security and income from working—even part-time—may curb the urge to dip heavily into savings too soon.

While retirement today may take on different meaning than yesterday, it’s wise for pre-retirees to prepare financially. Whichever road one takes—a working or laid-back retirement—a secure financial future will make the ride much more enjoyable.

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SBA’s Most Popular Loan Programs

Basic 7(a) Loan Guaranty: SBA’s primary loan program to help obtain guarantees up to $1.5 million for expansion or renovation, construction of new facilities, purchase of lands, buildings, machinery, inventory, furniture, working capital. Offers a term of 7 years for working capital, 10 years for equipment and 25 for real estate/construction. Interest rates are negotiated between borrower and lender, and typically can’t exceed prime rate plus 2.75%.

504 Loan Program, (CDC): Referred to as “brick and mortar” financing, 504 offers long-term, fixed-rate financing to businesses to purchase real estate or equipment for expansion or modernization. Generally includes a loan from a private lender with a senior lien, a loan secured from a certified development company with a junior lien covering up to 40% of the total cost, and at least 10% equity contribution from the borrower.

SBA Community Express Loan Program: Fast turn-around time and easy application process. Designed to increase working capital and provide smaller business loans—$5,000 to $25,000—that most banks wouldn’t touch. No collateral is required—only a $350 processing fee. Program offers a 7-year term. Borrowers must receive a Community Express Certificate of Technical Assistance from an SBA-approved Technical Assistance Provider.

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by Matt Berkley

Every year the U.S. Small Business Administration (SBA) helps multitudes of small businesses throughout the nation secure billions of dollars for startups, purchases, expansions, working capital and more. That being said, there are a lot of misconceptions about the loans themselves, which are complicated to the point of intimidation for many first-time borrowers.

Here are a few basic facts:

SBA loan guarantees are not actual loans. If you think the SBA will be cutting you a check, think again. What the agency offers is an alternative to a conventional term on a commercial loan. The loan itself is still funded and serviced by a bank/lending institution. The SBA will, however, guarantee as much as 80% of the loan principal, the maximum guarantee reaching $1.5 million. If the small business defaults on the loan, the guarantee requires SBA to purchase its portion of the outstanding balance upon demand by the lender subject to specific conditions.

Lenders will make loans once the SBA gets involved that they otherwise wouldn’t make. With the government backing the loan, private institutions look more favorably on startup operations or borrowers with insufficient collateral. “Collateral can be a big component in going SBA versus conventional bank loan,” says Jeff Roegge, regional sales manager/business development officer at Community South Small Business Lending.

There are some definite advantages. Most banks will not do startup businesses without the guarantee. “With the help of the SBA, the banks will probably offer better terms,” says Jerry Lash, director of finance and lender relations for St. Louis’ SBA office. “For example, most lenders will set working capital loans for one year. With an SBA guarantee, it can do seven. However, on equipment, banks normally go five, but with the SBA guarantee, it may go 10.”

Loan guarantees take time. Whenever the government is involved, you can be sure there’ll be some added red tape. Will there be more paperwork? Yes, but it’s hardly unreasonable and takes place mostly at the closing of the loan, Roegge assures. Also, be advised that you won’t always receive all your money in a lump sum. Lenders may require that you send in purchase orders/invoices before receiving a portion of the funds.

An SBA loan guarantee isn’t free. Lash says a common misconception people have about the loan guarantees is that they do not have an investment in the business. This is still a loan. According to SBA’s website, not only may the SBA-guaranteed loan have a higher interest rate than a conventional one, the SBA charges lenders a guaranty fee of anywhere from 1% to 3.5% of the amount it guarantees and also charges an annual servicing fee of 0.25% of the outstanding balance of any loans.

Locating a preferred lender is a good idea. These are banks and lenders, qualified by the SBA, that can offer faster application turnarounds and less hassles. For a comprehensive list, go to: www.sba.gov.

Some enterprises need not apply. Lash says most businesses are eligible for SBA loan guarantees, those that aren’t include:

* A not-for-profit business.

* Businesses engaged in lending. However, pawnshops, although engaged in lending, may qualify under some factors.

* Passive holder of real or personal property.

* Life insurance companies.

* Businesses located in a foreign country or owned by illegal aliens are not eligible.

* Businesses selling through a pyramid plan.

* Businesses engaged in gambling.

* Businesses that restrict patronage.

* Government-owned entities.

* Businesses engaged in promoting religion.

* Consumer and marketing cooperatives. Producer cooperatives are eligible.

* Businesses engaged in loan packaging.

* Businesses owned by persons of poor character.

* Equity interest by lender or certified development companies or applicant concern.

* Businesses providing prurient sexual material.

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by Joe Goldberg

Offering Employees A Customized 401(k) Plan

How can you identify the best possible program? The analysis includes several issues:

1. Does the plan have appropriate investment choices?

2. Is it cost-effective for both you, the sponsor, and your employees, the participants?

3. Can it be easily administered via efficient third-party administrators and record keepers?

The first hurdle is deciding how to create a plan that your employees will appreciate and in which they will strongly participate. So that you don’t have to “fly solo,” you might wish to seek an investment advisor who can help implement the plan as well as act as an investment fiduciary throughout the life of the plan. Following are additional merits to consider.

* Find your employees’ niche by identifying their demographics.

What type of 401(k) plan would best suit your employees? Ask them! Send out a survey in both electronic and hardcopy format and encourage their input. There is a caveat, however, regarding setting appropriate expectations: Make sure your company is committed to offering a program before you communicate with your employees.

* Help participants better understand and appreciate the plan.

Employees might need help understanding the plan once they are enrolled in it. Don’t rely on a third party administrator or fund manager to provide proper education to your participants.

* Consider offering model portfolios.

A fast-growing approach within retirement plan services is to replace the traditional dozens of individual fund offerings with a few basic “model portfolios.” The participant identifies his or her risk tolerance—aggressive, conservative, etc.—and long-term investment objectives, and then simply selects a single model portfolio that best matches that profile. The best news? Studies indicate that reducing the choices to a manageable few via model portfolios has resulted in increased participation.

* Consider seeking help from a qualified professional.

An advisor can help you find efficient third-party administrators and record keepers, whose responsibilities typically include storing documents, processing transactions and distributing statements. He or she can perform an analysis on both your existing plan as well as any you may be considering. In the process of performing such an analysis, even if you make no changes, you have an assessment for your files, as evidence that you are maintaining a watchful eye on your fiduciary responsibilities as a plan sponsor. Your advisor might find opportunities for you to reduce plan fees for you and your participants, while maintaining or exceeding current service levels.

* Be aware of automatic enrollment.

Another option gaining some interest is the concept of automatically enrolling employees in one’s 401(k) plan, requiring them to actively opt out if they do not wish to participate. Debate continues on the topic of setting up automatic paycheck deductions without employee consent, and some may feel auto-enrollment is too drastic a measure.

The automatic enrollment feature may or may not fit your employees’ individual needs, plus there are some instances when such tactics can backfire. An article in the December 2005 HR Magazine identified several situations: “Unlikely candidates for autopilot plans include companies with high turnover—they may end up having to manage a large number of former employees’ small accounts—and employers that believe benefits are best appreciated if employees are actively involved.”

While a 401(k) plan is only one element of a comprehensive benefits package, studies indicate that it is an essential one. By offering and actively promoting a high-quality plan that meets your employees’ needs, you will have taken a big step toward keeping your valued team committed to your company’s growth, and away from competitors’ offers. Perhaps even better, you will be providing a benefit that you and your employees can both feel great about—the opportunity to retire comfortably when the time comes.

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by Joe Goldberg

Imagine your five best employees—the most productive, enthusiastic individuals on your team. Now, consider what might happen to your business if they walked out the door next week, hired away by a competitor. Clearly, the success of your small business depends on retaining these valued individuals. What can you do to retain your best employees? One approach is to revisit your 401(k) offering to ensure it is being viewed as a benefit rather than a burden.

If you don’t already have a 401(k) plan, consider adding one to your overall benefits package. If you do already offer a plan, it’s important to reassess it periodically to ensure that a significant number of your employees are finding the program and the investment choices of value. How many of them are participating, and how much are they contributing? Could you make improvements that would increase those numbers?
It’s Not Just About Salary

In today’s work environment, desirable employees often seek not only minimum salary requirements but also comprehensive, rich benefits packages. If the best employees don’t find what they need with your company, they may look elsewhere. The U.S. Labor Department’s so-called quit-rate—a closely watched barometer of workers’ ability to change jobs—reached a four-year high in September when voluntary resignations totaled 2.3% of total employment.”
Most Companies Now Offer 401(k) Plans

According to the 2005 National Study of Employers conducted by the Families and Work Institute, 76% of small employers (50–99 employees) offer 401(k) or 403(b) individual retirement plans compared to 96% of large companies (1,000 or more employees).

In essence, a small business that offers flexible work hours and a casual work environment may still find itself at a disadvantage if it does not offer health insurance and a basic 401(k) plan. Employers who are unwilling to admit that these benefits are integral to employee retention need only look at statistics that show the number of individuals who are concerned about and currently planning for retirement—some with more than 30 working years left until they expect to retire; the prevalence and gradual disappearance of defined benefit plans over the last 30 years; and the poor individual savings rate in the United States.

If you do not currently offer a 401(k) plan, doing so could have a ripple effect, including strengthening company loyalty and increasing overall job satisfaction. If you clearly identify the plan as an additional benefit and provide ongoing support after its initial introduction, employees are likely to appreciate it even more.

Do Workers Really Know How Much It Costs To Retire?

Several surveys indicate that American workers often have misconceptions about retirement, particularly what it takes to achieve a comfortable retirement. For example, consider the results of the 2006 16th Annual Retirement Confidence Survey by Employee Benefit Research Institute. “One-quarter of workers are very confident about their financial security in retirement (24%), while more than 4 in 10 are somewhat confident (44%). However, at least some of those who say they are very confident may be overconfident. Twenty-two percent of very confident workers are not currently saving for retirement, 39% have less than $50,000 in savings, and 37% have not done a retirement needs calculation.”

Still, these statistics can be seen as a window of opportunity for small-business owners. Simply by offering a 401(k) plan—with or without matching contributions—you can help your employees prepare for retirement, which should increase their satisfaction with their jobs and their long-term outlook of the future.

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Steve Callow, senior vice president, Southwest Bank

What do you believe business owners are looking for in a banking relationship these days?

Callow: A banker that provides excellent service and understands their businesses. I don’t believe this has changed over the years.

How is your bank, in this competitive banking environment, going after new business?

Callow: We offer a high-touch community banking approach with local decision-making and the full product menu of a regional holding company backing us. The bank’s image and reputation also helps us bring in new business.

What are banks, in your opinion, doing today for business customers that they were not doing years ago?

Callow: I believe that banks have discovered the inherent value of working with small businesses and are focusing more of their resources on this market segment. This is a positive event for small-business owners that are not being ignored because lenders are just targeting middle market companies.

Sandy Washington, Senior Vice President, Commerce Bank

What do you believe owners are looking for in a banking relationship these days?

Washington: Selecting the right bank is similar to finding the right attorney or CPA for a business. The right banker partners with the business owner and becomes a trusted advisor. He or she develops an understanding of financial needs of the business owner (business and personal) and then offers specific financial solutions and recommendations based on that knowledge.

The primary drivers for selecting a bank have not changed over the years. Business owners are looking for a banking relationship that offers them both ease and convenience. The business owner looks for a banker to be responsive to them, offer them solutions on ways to structure loans and other banking needs, and is convenient to where they live or work. As an advisor, the banker also can help the business grow profitably by analyzing cash flow and business projections to interpret ongoing and future needs for the business.

How is your bank, in this competitive banking environment, going after new business?

Washington: Commerce Bank strives to make it easy and convenient to do business with us. At Commerce Bank, we ask questions and listen to small-business owners to thoroughly understand their business and personal financial needs so that we can offer the best solution to fit their needs.

Commerce Bank provides advice with deposit accounts, loans, investments and cash management services to make banking as simple as possible. We also consistently evaluate our products and services to ensure that we are offering the best solutions to meet the needs of small business.

What are banks, in your opinion, doing today for business customers that they were not doing years ago?

Washington: Years ago, many banks were focused on larger business relationships, not their small-business customers. Today, banks recognize that small business is an important segment and have developed more products and services that meet both the business and personal financial needs of small-business owners. By working to understand the needs of small business, bankers are trusted advisors to the business owner and can make the financial part of their business easier for them to manage.

Mickey Douty, UMB Bank

What do you believe business owners are looking for in a banking relationship these days?

Douty: I think bank customers are looking for a banker who understands the customer’s business, is a strong communicator and presents the bank as stable and predictable. Approaching a bank can be intimidating, and the banker needs to present himself or herself as committed to helping the client.

I checked with a few of my customers to find out what they thought. One customer said he wants a banker who can ‘put feeling into the numbers.’ He wants a banker who understands what is behind the numbers and why the owner decided to manage them in a certain way. Customers also need to have communication so they understand why the bank is asking questions or making certain requirements. Another client said he wants a banker that is knowledgeable about banking and his business, who is also working for a stable bank.

How is your bank, in this competitive banking environment, going after new business?

Douty: Speed represents a real change for small businesses. We have streamlined what has been learned in credit, and are offering answers and products much more quickly than in years past.

What are banks, in your opinion, doing today for business customers that they were not doing years ago?

Douty: Technology, products and speed. More contact is made over the Internet. The more contact that is made over the Internet, the less contact that is made at the bank. More contact then surrounds issues or problems, which means every contact is more likely to be a problem resolution, and is a little more important and less comfortable than in years past.

Mike Flavin, Irwin Union Bank

What do you believe business owners are looking for in a banking relationship these days?

Flavin: I don’t believe what customers look for in a banking relationship has changed much over the years. I believe they want a strong personal relationship with a banker they consider a partner, advocate and friend. They also want fast response, good service and a fair price.

I think customers also value stability. Industry acquisitions have created tremendous turnover. Explaining your business to a new banker every few months can be tiring.

How is your bank, in this competitive banking environment, going after new business?

Flavin: Irwin Union pursues businesses that value superior service. For example, we will send a courier to your office daily so your people don’t have to run to the bank. We also assign two people to each account so a business owner can always reach someone at the office or on a cell phone.

What are banks, in your opinion, doing today for business customers that they were not doing years ago?

Flavin: Today, there is no need to set foot in a bank. You can access all the information you want online. We come to you for meetings, and you can get cash and make deposits at ATMs.

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Fraud Prevention Checklist

* Reconcile accounts frequently/daily is ideal for early detection.

* Consider utilizing your bank’s reconcilement services.

* Utilize Positive Pay services on all payables accounts.

* Separate and/or rotate internal receivables, payables and reconciliation duties.

* Require mandatory vacations. Many embezzlement schemes are uncovered when the perpetrator’s function is fulfilled by someone else.

* Use third-party check verification services when accepting checks for payment.

* Reduce reliance on paper checks by switching to electronic or plastic means of making or accepting payment.

* Consult your check vendor to understand which security features they employ.

* Secure all check stock and signature plates under dual control.

* Audit check stock on a frequent, unannounced basis.

* Consider setting maximum limits on checks.

* Place stop payments on missing items.

* Employ ACH Blocks and Filters to protect from electronic fraud.

* Use Return Item Notification to get a jump on collecting bad checks.

* Thoroughly investigate new hires who will be involved in cash handling and other financial duties.

* Destroy unused check stock from dormant accounts or any other waste paper with account or tax information.

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by Steve Hazan

“If you make it easy for people to steal from you, they will”—Frank Abagnale

The Office of the Comptroller of the Currency estimates that 1.2 million fraudulent items are passed each day. According to the American Banker’s Association $4.3 billion in bad checks were written in 2001. Easy access to high tech computer equipment, readily available check stock from office supply stores, federally mandated funds availability for checks, organized criminal elements, and limited prosecution due to law enforcement constraints facilitate this activity.

Who Eats Fraud Losses? Answer: All Of Us

In 1990, the Uniform Commercial Code (UCC) was amended, radically changing the landscape for all parties. Historically, banks were considered the party best able to prevent the losses and consequently absorbed the lion’s share of any such costs. Changes in technology and the realization that potential victims bear some responsibility led to this overhaul.

The UCC requires parties to exercise “ordinary care” to prevent losses. Companies filing claims are also required to demonstrate sound financial controls. As a result, case law may now allocate losses to any party in a position to prevent the fraudulent activity. Regardless of who ultimately takes the final loss, society as a whole pays in the form of higher bank fees, insurance premiums, legal fees, time and other costs.

Protecting Your Business: Watch Out For The Bad Guys

Given the many creative methods of swindling potential victims, there is seldom one magic bullet that will solve the problem. A solid understanding of the criminal mind, vulnerabilities and potential solutions are the keys to detection and prevention.

The most prevalent crime is still forgery. Accounting for over one-quarter of all check fraud, perpetrators steal blank checks from careless or unsuspecting victims. Often in conjunction with identity theft, criminals operate in a very short window of opportunity before the fraud is discovered.

A related tactic is the alteration of legitimate checks by changing either the payee or dollar amount of an otherwise legitimate item. In some cases the checks are “washed” using a chemical process to erase some of the ink on the targeted area of the check.

One method fueled by easy access to technology and check stock is counterfeiting. Using scanners, desktop publishing applications and high quality printers, criminals create very convincing facsimiles of legitimate items. Organized crime elements often recruit several people to blitz an area at the same time so as to maximize their return before victims and law enforcement catch on.

Tools And Techniques To Consider

One of the most effective methods of thwarting fraud is a sound system of internal controls. Segregating the check writing, receivables and reconciliation functions minimizes the ability of a single perpetrator to defraud your firm. Too many business owners have been ripped off by their trusted 20-year employee who had too much power in his or her hands. Once caught and asked why they committed the crime, the answer often is “because I could.” Outsourcing one or more of these functions to a third-party provider, a viable alternative versus hiring additional staff is an effective practice

A related best practice is the careful screening of new hires that will have cash-handling or other financial duties. Background checks including credit history and drug testing have proven effective at minimizing risk.

Other precautions include keeping check stock and signature plates locked up under dual control. Frequent unannounced audits of check stock also aid in early detection and prevention. Keep cancelled checks secure; better yet, have your bank provide electronic access or a CD-ROM version of check images. An added benefit is the ease of researching items through this media.

Daily reconcilement of accounts is ideal for early detection of fraud. Financial institutions offer an array of reconcilement tools to complement internal accounting systems. This has the added benefit of minimizing the reliance on any one individual to handle all financial duties.

One highly effective component of these reconcilement services is Positive Pay, a service provided through financial institutions. Each day a file is sent to the bank with the check number and dollar amount of all checks issued. As checks are presented, any check numbers or dollar figures not matching are flagged as an exception. The business may elect to return all exceptions or decision items on a case-by-case basis.

What About Electronic Fraud?

A recent Federal Reserve study illustrates the dramatic move from paper checks to electronic and card payments. Although taking advantage of this shift does not completely immunize you from other forms of fraud, it substantially reduces the vulnerability inherent in checks.

As many businesses turn to electronic means of payment there has been tremendous growth in debits via the Automated Clearing House (ACH). Through their bank, businesses can block all ACH transactions or use filters to allow only preauthorized vendors to access funds. There is also the option to filter by dollar amount to prevent large debits due to error or fraudulent activity.

For those not ready to take advantage of electronic payments or plastic, it is imperative to use checks with built-in security features. Among the more useful elements are safety paper, chemical voids, microprinting, void pantographs, watermarks, blended colors, holograms, padlock icons, heat sensitive security inks and fluorescent fibers. Such safeguards are similar to those employed by the Bureau of Engraving and Printing in the printing our nation’s currency.

Call To Action!

As there is no single magic bullet, your access to expertise in this area and willingness to take action is an integral part of detecting and preventing losses. Understanding the risk landscape and available solutions enable you to reduce exposure to fraudulent activities. Assess and address potential weaknesses today, before you become another statistic.

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Quick! What’s your banker’s name? When is her birthday? How many kids does he have? If you’re committed to the success of your business and want to develop a positive relationship with your bank, you’ll know this information.

How do you become more than a number to a bank? Once you’ve chosen a financial institution, make an appointment with a loan officer or bank manager. At the meeting:

* Provide the banker with your business plan, brochures, business cards and anything else that will give him or her a feel for your business.

* Describe your business, financial situation and plans.

* Ask about the scope of the bank’s services.

* Express an interest in your banker’s background. Ask about his or her family, hobbies and aspirations.

* Business owners should follow up with periodic phone calls, visits and lunches.

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by Ron Ameln

When Steve Groeper stopped by Chuck Brooks’ home six years ago to help him remodel his house, he did much more than hang drywall. Groeper, the owner of several real estate holding companies in St. Charles County, planted the seed for a new community bank in St. Charles.

“While we were working on the house, we were talking about how there really wasn’t a true community bank in St. Charles County—one that really wanted to serve small businesses and residents,” said Brooks, who at the time was a banker with First Bank. “There wasn’t a community bank that was 100% locally owned. It just seemed like most of the banks here really wanted to go after bigger accounts and that the little guys were left out in the cold.”

Five years after the initial discussion, Groeper and Brooks decided to take the plunge. The two friends recruited investors and raised $10.6 million to start 1st Advantage Bank. The bank, located in St. Peters, officially opened last month.

“I think it’s important to have a bank with local ties,” Brooks said. “Our investors are local business people in St. Charles County. Sure, the national banks all have branches out here, but none of them are connected to the community and locally owned. We have a true community focus. Everything stays right here in St. Charles County.”

Citing a need in the marketplace for banks that understand small businesses, more and more community banks are popping up around the St. Louis area, and community banks that have been active for years are now adding branches and growing. This is ironic since some experts predicted the demise of community banks a few years ago, believing industry consolidations would leave only a handful of “national” banks to serve communities.

Tom Hagar, president of FirstService Bank, said community banks allow business owners to develop a solid relationship with their bankers. “Businesses can deal with the same lender for most of their needs,” Hagar said. “Larger banks will have someone handle commercial lending, someone handling mortgages and someone else handling other services. With a community bank, one individual should be able to take care of all your needs. A banker that understands your business can do an analysis and see how you can incorporate bank services to help your business.”

“There is a good percentage of small-business owners that really rely on banking relationships,” said Jim Hall, president of Pioneer Bank. “It is tougher to establish that relationship with larger banks. The larger banks move people around more often. Small-business owners find themselves educating a new banker every six months. Owners become leery of that.”

Finding a banker that understands your needs is important, especially during challenging times, according to Hall.

“Working with a bank is easy when things go well,” Hall said. “The challenge is when you hit a little blip, which most businesses do. Community banks are not as rigid in their underwriting standards. The big banks tend to want everything to fit in a box. That can be tough to accomplish.”

Community bankers say they can compete with the online services and fancy bells and whistles of larger banks. What they admit they can’t compete with is its hundreds of branches scattered throughout the area. To make up for that, they focus on service.

“We know 85% of our customers by their first name when they walk in the bank,” said Jerry VonRohr, of Reliance Bank. “That’s just not the case in the big banks. When you call here, 98% of the time you get a live person. Most questions can be answered here on the spot.”

Hagar said consolidations should continue. At the same time, he believes community banks will continue to serve businesses.

“The consolidation will continue, but not at the pace we noticed the past 10 years,” Hagar said. “It is creating opportunities in the market for small businesses that have become disenchanted with the consolidations. They are tired of reintroducing themselves to new bankers. Businesses want to have some certainty on what their bank will look like in five years.”

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