Schedule Annual Insurance Review to Avoid Surprises
Are you adequately insured? What is covered by your various policies? Are you over – or underinsured? Have your policies become outdated? Many business owners spend a small fortune on insurance, yet they don’t have the answers to these questions.
Risks change constantly, and it’s not uncommon for an insurance update to fall toward the bottom of an executive’s “to do” list. The problem is, without an up-to-date risk management plan, your investment in insurance premiums may be for naught.
Start with an Integrated Plan
To ensure that you’re properly insured, both in your business and personal lives, it’s essential to have a yearly insurance review. The review should include an overall risk management plan and consideration of risk priorities in both your personal and business arenas.
Start the process by gathering your trusted advisors. Your CA can serve as the “quarterback” for this effort, keeping an eye on your financial interests as you work with insurance professionals.
The first step is to identify and assess your risks. This often illuminates at least a few areas where you can eliminate liabilities by planning ahead or “fixing” things. This may be something substantial, such as updating your shareholder agreement or estate plan, or as small as repairing a broken step at your building.
Next, talk with your advisors about how to manage remaining risks by deferring, reducing, self-funding or insuring them. If insurance is the answer, be sure to address these areas:
- Disability and life insurance. This type of insurance has impact on both personal and business matters. Families typically benefit from disability and life insurance for income replacement, debt coverage, and gift and estate planning purposes.
For businesses, life insurance is a common way to fund buy/sell agreements, but there are also other meaningful applications, such as key person insurance, which helps companies manage financially in the event of the loss of a particularly key employee.
- Overhead insurance. If your business can’t pay its bills due to your disability, overhead insurance will keep the lights on and give you, your family and your employees a financial cushion and time to regroup.
- Private health insurance. If you are diagnosed with a critical illness or condition such as cancer, heart attack or stroke, critical illness insurance will provide a lump sum payment to spend as you wish while you recover. For example, it can help cover lost income or pay for private nursing or out-of-country treatment.
Queue-jumping insurance may be of interest to those who want to guarantee faster access to care. Given the current state of Canada’s public health system and projected waiting lists, timely access to care could be a significant risk.
Personal long-term care insurance, which covers facility or in-home care, becomes important as owners age. The younger you are, the more affordable it is, so investigate this option sooner rather than later.
- Property and casualty. This is an area where many owners think they have one type of coverage, but really have another. What types of losses are covered, or more importantly, what types are not covered? What value are you covering, replacement cost or market value? Discuss the details with your insurance team.
- Liability. Who could sue you and why? Different types of businesses need different types of insurance, from product liability to errors and omissions coverage. Be sure this is updated to reflect your current offerings.
Overall, it’s important that your risk management plan is reviewed annually so that your family and business partners can move forward with some financial security as they make decisions about the future.
DJB can help you coordinate your insurance review. Please contact us to discuss next steps.
Word to the Wise
How to Work with Different Communication Styles
Have you ever left a conversation with a coworker sure that you’ve agreed on a plan only to find out days or weeks later that he or she had a completely different take away from your meeting?
As Paul Newman said in the old movie, Cool Hand Luke, “What we got here is a failure to communicate.”
Communication failures are much more than mere inconveniences. They cause enormous inefficiencies, productivity problems and frustration.
Identifying the Right Approach
Creating better communication patterns at work is not just a matter of talking more. Often, it’s a matter of listening more and talking less.
There are hundreds of books, articles and seminars devoted to improving communication at work. Most share a common element — some sort of categorization of communication, learning or work styles. For example, you may find people described as assertive, aggressive, passive or passive-aggressive communicators. You may hear the terms dominance, influence, steadiness or compliance. Other categories include auditory, visual, auditory digital and kinesthetic learners.
Whatever the approach — just pick one so you’re all using the same vocabulary! — the point of these classifications is to help your organization identify how to communicate with each other. There is great value in knowing more about your own way of interacting, but it’s even more valuable to know how your colleagues like to deliver and receive information.
Some companies conduct formal surveys and training to determine how each employee communicates. That information is then shared with colleagues so that they are aware and prepared to interact with each other in the most effective manner.
In other organizations, individuals or teams determine and share their styles more casually, but make a point to encourage active listening and paying attention to communication cues. Either way is fine, as long as people are deliberate about accommodating others’ styles.
Working with Teams
Note that you already accommodate different styles, probably without realizing it. For example, when you have a conversation with a certain person in your organization, you know that the dialogue will be more productive if you give a lot of background information, illuminate the pros and cons, and expect a lot of probing questions. But there are others on your team who react more positively when you’re very top-line driven and deliver quick snippets of brief and factual information.
Accommodating these different styles is almost second nature when the communication is one-on-one. But when working with committees and teams, it is helpful to present information in a variety of ways so that everyone in the room is reached appropriately. For example, auditory learners typically embrace information presented through conversations and discussions, while visual communicators like to process what they see via charts, videos and pictures. Presenting ideas in both ways will keep everyone interested and engaged.
Don’t be shy about telling colleagues how you communicate best and how you like to receive information, and don’t hesitate to ask them to share their preferred style with you. Don’t forget to share this information with your trusted advisors, too!
Getting along in business is more than just being respectful — it’s about efficiently working toward a common goal. Communicating effectively makes reaching that goal much easier.
Interested in learning more about improving communication? DJB can recommend experienced consultants who can help you.
ASPE or IFRS?
Private Companies Have Options for Accounting Standards
For financial years beginning on or after January 1, 2011, privately held companies in Canada must choose which option they want to use in terms of a reporting framework for their financial statements — the new Accounting Standards for Private Enterprises (ASPE) or International Financial Reporting Standards (IFRS).
The default for most private companies will be ASPE, which were developed by the Canadian Accounting Standards Board to address the need for less complex accounting standards for smaller, privately held enterprises. ASPE is based on existing Canadian accounting standards, so private companies that choose this option will have a relatively smooth transition, as most accounting policies and practices won’t change.
Note that ASPE differs from Canadian Generally Accepted Accounting Principles (GAAP) in several key areas, including disclosures. ASPE eliminates or simplifies a considerable number of disclosure requirements, but adds one important one: the disclosure of the amount payable at the end of the period for government remittances other than income taxes. This change was included because lenders consider this to be important information.
ASPE doesn’t include the Emerging Issues Committee (EIC) abstracts, but some material from 29 of the abstracts has been incorporated into the standards. In addition, ASPE has consolidated all the financial instruments requirements into a single standard, allowed the use of regulatory funding valuation for defined benefits plans, and lets companies choose to capitalize or expense development expenditures. The new standards also simplify the measurement of asset-retirement obligations, and allow accounting policy choices that were previously permitted under differential reporting options to be made by management and disclosed in the notes to the financial statements.
IFRS is more complicated than ASPE and includes more financial disclosures, including the compensation of key management. Because of this complexity, preparing financial statements in accordance with IFRS requires additional time, which means more cost.
However, there are specific circumstances that make adopting IFRS a better choice for some entities. For example, if the company already has significant competitors, suppliers or customers that use IFRS, or a parent company that uses IFRS, adoption of the international standards may make sense.
If growth plans involve an IPO, international expansion or financing from international sources, IFRS is a must.
Making the Transition
Adoption of ASPE is retrospective. In other words, if you adopt ASPE for 2011, your financial statements will include 2010 comparative information under ASPE and an opening balance sheet that must be prepared in accordance with ASPE.
One key thing to note is that ASPE includes several optional exemptions for first-time adopters. For example, at the transition date, you may elect to measure property, plant and equipment at fair value — a one-time opportunity to revalue fixed assets.
There is also the option to recognize any unrecognized actuarial gains or losses related to a defined benefits plan in retained earnings.
Both of these options can have significant financial consequences, including tax implications, so it is imperative that you discuss them carefully with your accounting advisors.
It’s time! If you haven’t yet chosen ASPE or IFRS, let’s discuss your options at your earliest convenience.
When Is It Time to Expand?
You’re turning away work. Product is flying off the shelves. You can’t clone yourself, and you can’t make the stuff fast enough.
Is it time to expand? Not necessarily.
Before hiring an architect to draft your big, new headquarters, recognize that there are many steps to take before signing on for more space, equipment and personnel.
Do a reality check. There may be a simple explanation for your super-busy state. It is really that more people want to buy from you, or is it a symptom of something else?
For example, it may be that your operations aren’t running at optimal efficiency. You might actually be able accommodate more business by updating your equipment or adjusting your supply or distribution arrangements.
Or, it could be that demand has temporarily increased due to a market irregularity, fad or other anomaly. Dig deep to determine whether this is a spike or a sustainable trend.
Make a plan. If the growth is real and sustainable, create a business plan to address it. Start by defining goals and objectives. How much more capacity do you want to achieve? What’s your expected cash flow, and how will you finance the growth? You’ll need to produce sales targets and forecasts for the next few years, and determine a staffing and marketing plan as well.
Share your news. Talk to your financial advisors including your CA, attorney and banker, and ask for their input on your plan. There may be tax implications to your expansion. Also, keep your customers apprised of your plans so that they are aware of your positive growth and so that they can manage any disruptions in service.
Stay on track. Develop a project management schedule with names and dates assigned to tasks. This will ensure steady progress.
DJB can help you create a solid business plan. Let us help you grow!