Archive for July, 2010

Photographing Assets

Friday, July 30th, 2010
Worth Recording

Worth Recording

As I look forward to August, I am planning to update my digital photographs and video records of key assets. Digital images help to document hard-to-value assets, such as artwork, for example. I generally use the month of August to get caught up on all of my nagging chores, because most people I need to see are on vacation, so little gets done during this month. It seems that everything is in freeze-frame as we wait to resume normal activity after Labor Day. But particularly with this severe heat and humidity, I’d rather stay indoors and put my home and office in order. Then I can make a fresh start in autumn.

In addition to taking digital photographs of new items or updating records for old ones, I will be scanning in and digitizing key documents for online storage. Of course, these files will also be backed up offsite for remote retrieval. I hope I will never need them, but the peace of mind is priceless. I thought of peace of mind today when looking at the newspaper photographs of the wildfires raging in southern California. Everyone always regrets losing precious memories in the form of family photographs. Make sure yours are safely backed up.

Taking My Own Advice

Thursday, July 29th, 2010

I had the unnerving experience of hearing the chirping sound emanating from my UPS (Uninterruptible Power Supply) unit, followed by intense crackling. Fortunately, this was not followed by any equipment malfunctions. An hour later it happened again and then once more by the close of the business day. It turns out that my building was experiencing micro-outages and alternating power surges caused by extreme demand on the grid from air conditioning usage. Without the protection of the UPS unit, my computer would have been fried. My cinema display monitor survived the first two electrical assaults, but capitulated after the third one. Fortunately, the monitor is not damaged; I just need to replace the power cable. I am glad I followed my own advice; protecting sensitive computer equipment with a UPS unit really paid off today.

An Indication That Premiums May Rise

Wednesday, July 28th, 2010
A Peek Into the Future

A Peek Into the Future

In the first edition of Prepare for the Worst, Plan for the Best: Disaster Preparedness and Recovery for Small Businesses (Wiley, second edition paperback, 2009), titled Contingency Planning and Disaster Recovery: a Small Business Guide (Wiley, 2002), I wrote to explain how, in the aftermath of a major disaster, insurance premiums rise. However, large corporations eventually reach their threshold for pain and adopt self-insurance, captive and other programs to reduce their costs (p. 171):

Large corporations will become increasingly unwilling to pay such steep insurance premiums and will develop innovative means of insuring their risks. We have seen this phenomenon before, beginning in the 1980’s with the development of the so-called alternative risk transfer market (ART). ART offered a portfolio of tools by which corporations could transfer their risks by means other than standard commercial insurance programs. One such tool is a captive insurance program whereby large corporations insure their own risks through wholly owned insurance companies. They were typically domiciled offshore, in places such as Bermuda and the Cayman Islands, to benefit from the favorable tax treatment and fewer regulations. Captives allow corporations the benefit of tax-deductible premiums to cover their risks while ensuring that profits on the program remain in-house.

Now, some interesting news from Vermont, the leading jurisdiction with laws friendly to establishing U.S. captive insurers. In the first six months of this year, Vermont licensed 17 new captives, with a great deal of interest reported by hospital groups seeking coverage for their professional medical liabilities and financial services companies that face premium increases for their directors and officers liability coverage.

Many market analysts believe that this is a defensive measure in anticipation of further premium increases, in which case the insurance market, where small businesses have relatively little bargaining power, is about to get tougher for us. As I am an optimist, I would like to believe that as demand declines in the traditional market, as large corporations self-insure through captives, we will benefit from declining premium rates. Indeed, that it what I had argued in the first edition of the book. Unfortunately, the world changed with the 2008 banking crisis. I am with the market analysts on this one; I predict rising insurance rates, so if you have an opportunity to lock in coverage now for a multi-year period, it would probably pay to do so.

Key Person Insurance

Tuesday, July 27th, 2010
Advance Agreement

Advance Agreement

The Forbes website has a great column on key person insurance, titled “The Corporate Equivalent of a Kevlar Vest”. Key life insurance is an inexpensive term life insurance policy that pays a benefit to the business upon the death of the owner or other manager critical to the business. We discussed key person insurance in Prepare for the Worst, Plan for the Best: Disaster Preparedness and Recovery for Small Businesses (Wiley, second edition paperback, 2009) in a more extreme context.

But the untimely death of a person who is critical to the continuity of the business can be disastrous if you have not planned for it. The proceeds of the policy may allow your business partner to buy out your heirs’ interests while providing operational continuity, which is critical to both your employees and your heirs. Banks often require such insurance coverage when extending business loans. But another benefit of key person insurance is that it imposes operational and financial discipline, as you must value the business annually to make certain your coverage is adequate. As the cost of such coverage is very low, all business owners should look into it.

Helping the Gulf Coast Tourism Industry

Monday, July 26th, 2010
Importance of Leisure

Importance of Leisure

The U.S. Travel Association reports that as many as 400,000 travel industry jobs could be lost as a consequence of the oil spill in the Gulf Coast. The total potential cost of the spill to the Gulf Coast tourism industry is estimated at $22.7 billion with most of those losses, as much as $18 billion, likely to occur in Florida. “Travel is a perception business and the impact of disasters like the BP oil spill on the industry is actually predictable,” said Roger Dow, president and CEO of the U.S. Travel Association in a press release. “We know from this research that the oil spill will have long-term effects on businesses and jobs in the Gulf Coast region unless we counteract the usual course of events with an unprecedented response.” The U.S. Travel Association is calling for a $500 million marketing campaign to encourage tourists to return to the Gulf.

Although I oppose spending federal government money to market and promote any industry, I do agree that it makes sense for the U.S. Commerce Department to create travel-related trade missions to encourage international tourists to visit the Gulf. That could certainly be done at low cost. The risk of advocating for tax credits to promote Gulf Coast tourism is that the effort could take tourist business from other parts of the U.S., thereby undermining broad public support for Gulf Coast rebuilding. The high unemployment rate hurts the tourist industry everywhere; unfortunately, the oil spill exacerbates this weakness for the Gulf of Mexico.

Protecting Children During Disasters

Sunday, July 25th, 2010
Keeping Them Safe

Keeping Them Safe

Save The Children has just published a report, “A National Report Card on Protecting Children During Disasters”, which finds that five years after Hurricane Katrina displaced more than 160,000 children in the Gulf Coast, most states are not fully prepared to protect children in disasters. Fewer than one-quarter of the states have implemented the four basic safeguards to protect children who are in school or child care during disasters, which are:

  • A plan for evacuating children from childcare
  • A plan for protecting children with special needs
  • A plan for evacuating children from schools and
  • A plan for reunifying children with their parents after the disaster

Now is the time to follow up with your child’s school to make sure that they have plans in place and that you know what they are. Only twelve states, including Mississippi and Alabama, met all four requirements.

“Rapid” Response is Not Fast Enough

Friday, July 23rd, 2010

ExxonMobil, Chevron, ConocoPhillips and Shell Oil Company pledged $1 billion to create a “rapid response system” to address any future oil spills in the Gulf of Mexico. The system is still under development, but preliminary plans calls for “capture vessels” to contain and store oil in the event of an underwater well rupture. The system will be operational at depths of up to 10,000 feet with containment capacity of 100,000 barrels daily. The Marine Well Containment Company, a non-profit organization, will operate and maintain the system. The four oil companies plan to begin immediately the engineering and design of the containment equipment and vessels for the system.

No doubt the announcement was welcome by Louisiana Governor Bobby Jindal who spoke at an “Economic Survival Rally” to call for an end to the ban on deep sea drilling for oil and natural gas. Jindal estimated that the ban could cause the loss of 20,000 jobs in Louisiana over the next year. The situation with Louisiana’s oil and gas industry is analogous, in some respects, to our own situation in New York City. An entire ecosystem of small businesses is built around the principal industries of oil and gas in Louisiana and financial services in New York. When that mainstay industry experiences a reversal of fortune, the consequences to the community small businesses are especially severe. The difference, of course, is that we need energy to fuel our economy. Arguably, reduced employment on Wall Street, while painful locally in New York, might not be bad for the rest of the country.

Tropical Storm Bonnie On the Wrong Course

Thursday, July 22nd, 2010

In Harm's Way

In Harm's Way

Tropical Storm Three is now officially Tropical Storm Bonnie; let’s hope it doesn’t escalate to “Hurricane Bonnie”. Based on the projected path of the storm, certain of the work on the relief well has been stopped as workers have been directed to leave the area. The forecast is for an above-average storm season in 2010; this is the year that we pray the forecasters get it wrong.

What can we do to help small businesses in the Gulf Coast at this difficult time? We can support their businesses. I am making a point to take my vacation this year in the Gulf Coast region and am trying to organize whatever procurement I have to do with businesses in those states.

This graphic is courtesy of the National Oceanic and Atmospheric Administration. NOAA updates its forecasts frequently; this update is as of the close of business today.

Severe Floods in China

Wednesday, July 21st, 2010
China Daily

Source: China Daily

More than 700 people died and 347 more are missing following torrential rains and floods in China, the worst that country has experienced in a decade. The floods affected 110 million people in 27 provinces and municipalities; 8 million residents of those areas were evacuated. The Chinese government estimates direct economic losses from the flood to be $21 billion, which includes damages to more than 7 million agricultural hectares and the destruction of more than 600,000 homes. The government also reported that 287,000 military personnel had aided in the flood rescue operations. This year’s flood season, which begins in China in April, has been unusually severe. In more than 230 rivers across the country, water levels have risen above what is considered safe. Areas adjacent to the Yangtze River have experienced the worst flooding in 30 years but, according to the Chinese government, the Three Gorges Dam prevented even more severe flood damage by blocking more than 40% of the water.

I have not yet formed an opinion on whether global warming has induced permanent climate change. But it is undeniable that we are experiencing the most severe weather patterns in some time and it appears to be a global phenomenon. At a time when the recession has stretched resources thin, we are particularly vulnerable to external shocks, such as natural disasters. And public resources are inadequate to fund relief efforts. Many people will try to ease the pressure on their budgets by foregoing “non-essentials”, such as insurance, when times are tough. But that is when you need it the most. Sadly, for entrepreneurs in China, most small businesses don’t have access to adequate insurance coverage. We do, so there is no excuse for us.

Made in America

Tuesday, July 20th, 2010
Must-Watch Television

Must-Watch Television

My TiVo is set to record the Travel Channel weekdays from 9:00 – 10:00 a.m., the broadcast slot for John Ratzenberger’s program “Made in America”. Most of us would recognize the program host as the actor who played Cliff Clavin in the television series “Cheers”. I was surprised to learn how many characters he voiced for Pixar animations. But we see a whole other side to John Ratzenberger when he welcomes viewers at the opening of this program: “Hi, I’m John Ratzenberger. If you want to know America, you’ve got to meet the folks who work in factories and workshops. People who make real things and take pride in what they do. And then, you have to go in there with them to see how it’s done. So, that’s what I did. I poked around every corner… More of this country — big cities, small towns, and whatever was in between — looking for the soul of America. And you know what? I found it everywhere. So sit back and relax, because we’ve got it made… in America.”

Over the course of the series, Ratzenberger criss-crosses the United States to visit factories and meet workers responsible for iconic American brands. It is a bit sentimental as you remember childhood favorites – like when he visits the Crayola Crayons factory or the factory where the Monopoly game boards are assembled. The segment taped in Arkansas, where Frye Boots are made, was a delight; those were the status symbol when I was in high school. My favorite segments were the tours of KitchenAid, Kohler, Viking Appliances, Hallmark Cards, Brooks Brothers, Hartmann Luggage, Yankee Candle, Pyrex, Tom’s of Maine, Maker’s Mark Distillery, Pendleton Woolen Mills, Steinway, Craftsman Tools, Stickley Audi Furntiture, Steuben Glass, Longaberger Basket Company. The series is an inspiration to all small business owners, even those of us who work in the service sector, as we can see the pride in workmanship and lasting quality that these companies represent. You can also check out Mr. Ratzenberger’s website where he makes the case for investment in domestic manufacturing. His program is part of my daily dose of inspiration.