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Business Basics – 102

Economics – The study of how society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals.

Business cycles – The periodic rises and falls that occur in economies over time.

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Economic boom – Business is booming.

Recession – Two or more consecutive quarters of decline in the gross domestic product.

Depression – A severe recession, usually accompanied by deflation.

Recovery – When the economy stabilizes and starts to grow again. This eventually leads to an economic boom, starting the cycle over again.

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A Guide to Standing Committees for Nonprofits — General Principles

No matter how big or small your organization is, having a solid structure for your volunteer board and committees is one of the best ways to make sure your board is efficient, engaged, and adding value to your management team. While there are templates and guidelines galore for committee descriptions, not every organization will need (or be able to support) the same committee structure. This blog series will look at the most common standing committees, what they can do, what they really should do, and how to integrate them within your larger board structure.

First, let’s outline some basic concepts. Your committee structure should be outlined in your organization’s By Laws or, as they’re called in Ohio, Code of Regulations. I’ll be speaking to Ohio’s nonprofit corporation law, but in terms of committee powers, most states are very similar. If you’re not in Ohio, though, be sure to check you state laws to make sure there are no conflicting provisions.

The theory behind any committee structure, no matter how simple or robust, is that many hands make light work. While the whole board should be involved in certain activities, and should always be the final decision making authority for the organization, the detail work of researching, investigating and advising management to recommend actions should be done by smaller groups of volunteers. That way when you present a strategy to your board, you’ve really run down all the pros and cons and can put a viable plan in front of them to discuss and, hopefully, adopt.

Committees are also the place to pull in expertise from people who don’t sit on your board. Accountants, lawyers, industry experts, consultants, service providers, and others with specific experience in your service area often have much to offer in vetting possible strategies. These people are often not the best choice for board members, though, because they may not be willing or able to engage in the kind of fundraising, outreach or advocacy that your whole board really needs to do. (We’ll dive in to that more our post about development committees.)

Remember, most importantly, that committees are supposed to help management, not add to their work load. If you’re a nonprofit manager and you routinely worry about creating an agenda for committee meetings because you don’t know what they’re supposed to do, don’t feel like you have work for them, or don’t want to have to manage the less than helpful suggestions that come out of your committee meetings, then I’d like to suggest you don’t have the right committee structure. Your board and your committee structure are not the place to steward and engage your biggest donors. Any organization’s committee structure must be a reflection of the organization’s mission and work plans, and help your staff work most effectively.

Next up we’ll look at the Board Development Committee. Until then, practice removing the phrase “nominating committee” from your vocabulary!

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Paycheck Protection Program

We are navigating uncharted territory: COVID-19 the virus, the economic fallout, the government assistance programs. It seems that the SBA’s assistance programs, including PPP and EILD, change daily, maybe even hourly. This New York Times article from yesterday provides answers to frequently asked questions for small businesses, freelancers and more.

We are here if you need us, please reach out and we will do what we can to help you through these difficult times.

Stay safe!

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COVID-19

We are experiencing unprecedent times in connection with COVID-19 – social distancing, business closures, mental and physical health concerns, school closings, and more.  We have likely all been inundated with emails, posts and the news about the pandemic, the numbers, the expected numbers, etc. Of the numerous articles I’ve read about the various financial assistance programs, most of which are extremely confusing, this one lays it out well.  It explains the available programs for small businesses and non-profits, collectively referred to as the CARES Act.  Please feel free to reach out if we can answer any of your questions or concerns, or otherwise be of assistance.

Stay safe.

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What You Need to Know about Crisis Communications

We’ve seen notices from just about every type of business, delivered in just about every way imaginable, outlining the response to the COVID-19 pandemic. I think we can all agree, this is a crisis. So it’s time to review some basic, and oft forgotten, principles of crisis communications.

  1. Be honest. This one’s pretty easy, especially in states where non-essential businesses are shut down. Outline what, if any, service you’re still able to provide, and how to access it for the time being. If response times are going to be slower, set realistic expectations. This will help both your clients and your employees.
  2. Stay in your lane. Let’s leave the science to the scientists, folks. Don’t explain the virus. Whatever you say today, even if it is correct, will be old news tomorrow anyway. When you speak, speak about your business. And don’t predict when or how you’ll be able to return to normal, until we all really know when and how we’ll be able to return to normal.
  3. Stay professional. You have a brand for you business. Make sure everything you’re saying now, including what you say, how you say it, when you say it, and what channels you use, consistently reflects your established brand.
  4. Here’s the big one — this is actually a chance to enhance your client relationships, and perhaps pave the way for some new ones. You need to be balanced, and don’t come across as mercenary, but anything you can offer online, at advantageous cost structures, any message you can give about how you serve your community now and when normal returns, is important. Don’t just focus on doom and gloom — remind everyone we’ll see each other on the other side.
  5. Make sure you keep 1 through 3 in mind when you work on number 4!

If you’re having trouble crafting your message, try contacting a reputable crisis communications team for help. We’re happy to give you our recommendations if you reach out to us on our website.

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Business Basics – 101

Part 4 – The Business Environment

The business environment is the surrounding factors that either help or hinder business development. These include the economic and legal environment, the technological environment, the competitive environment, the social environment and the global business environment. Businesses that create wealth and jobs should grow and prosper in a healthy environment. Although businesses can’t control their environment, they should pay careful attention so they can adapt as it changes.

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People are often willing to start new businesses if they believe the risk of losing their money is not too great. Both the economic system and the way the government works with or against businesses can have a strong impact on the risk level. For instance, government can actively promote entrepreneurship by allowing private ownership of businesses and passing laws that enable people to write enforceable contracts, among others. The Uniform Commercial Code is an example of laws that regulate business agreements such as contracts and warranties, thus allowing companies to know they can rely on one another.

Information technology has had the most comprehensive and lasting impact on businesses, and affects all industries. It has changed the way people communicate with one another, as well as created ways to reach suppliers and customers. Technology is a broad term including phones, computers, copiers, mobile devices, medical imaging machines, robots, the Internet, social media and software programs and apps that make business processes more effective, efficient and productive. Effectiveness means producing the desired result; efficiency is producing goods and services using the least amount of resources; and productivity is the amount of output you generate given the amount of input, e.g. number of hours worked. E-commerce, the buying and selling of goods online, is important in both the business-to-consumer and business-to-business markets.

Competition among businesses seems to be at an all time high. Some have found a competitive edge by focusing on quality which, when coupled with good value, i.e. oustanding service at competitive prices, allows them to stay competitive. Exceeding customer expectations is critical. Today’s consumers want not only good quality and low prices but great service as well. In the past business had been more management-driven, in today’s competitive environment it is more customer-driven. Successful businesses listen more closely to their customers’ wants and needs, then adjust their products, policies and practices accordingly. Part of this customer-oriented shift requires customer-facing workers to have greater responsibility, authority, freedom, training and equipment to respond quickly to customer requests. This empowerment allows frontline workers to provide the great service demanded by today’s consumers.

The U.S. population is going through significant changes that are dramatically affecting where and how people live, what they buy and how they spend their time. The social environment requires companies to manage diversity, including not only minorities and women, as in the past, but also older adults, people with disabilities, married people, singles, those with a different sexual orientation, atheists, extroverts, introverts, religious people, and immigrants, to name but a few. People aged 65-74 are currently the richest demographic in the country, thus representing a lucrative market for many companies. By 2030 the popluation 65 and older will increase by 20%, and by 2050 it will more than double. Products and services for middle-aged and elderly customers will provide excellent opportunities in the 21st century. The number of single parent families is also on the rise, which has had a major affect on businesses, such as encouraging family leave programs and flextime.

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Insurance Issues You May Not Have Considered

The novel coronavirus has generated incredible uncertainly in nearly every aspect of business and personal life. In researching possible insurance relief for several of our clients, we discovered some very challenging limitations to standard business insurance coverages, some of which surprised all of us. The following article from Law360 is particularly instructive, and we pass it along to you here.

4 Key Coronavirus Insurance Coverage Battlegrounds

By Jeff Sistrunk Law360 (March 13, 2020, 3:43 PM EDT) — Property and liability insurers are bracing for an uptick in claims across virtually every line of coverage due to the outbreak of the novel coronavirus, as companies lose money by shutting down large-scale events and businesses face supply chain troubles.

Here, Law360 looks at four types of coverage that are especially ripe for disputes.

Event Cancellation

As the number of confirmed cases of COVID-19 continues to rise in the U.S., high-profile event cancellations have become a near-daily occurrence. In the past week alone, the NBA, NHL and MLB all suspended their seasons, the NCAA cancelled its March Madness basketball tournament, and Disneyland shuttered its doors indefinitely.

Attorneys who spoke with Law360 said that since late last month, they have been inundated with inquiries from insurers and event organizers seeking guidance on disputes over coverage under event cancellation policies, which generally cover at least some of the policyholder’s lost revenues and out-of-pocket expenses.

These specialized policies almost always contain a list of covered causes, and attorneys said coverage for coronavirus-related cancellations may be available if the list includes communicable diseases or, even more specifically, pandemics. However, a policy won’t kick in if an organizer cancels merely due to the fear of coronavirus in the community, according to attorneys.

“These policies cannot respond to voluntary decisions not to go forward with an event or a disinclination to gather a group,” said Laura Foggan, chair of Crowell & Moring LLP’s insurance and reinsurance group, who represents insurers. “They are designed to respond in a case where there is a legal or physical impossibility of holding an event.”

Therefore, if an organizer cancels an event due to an official ban on large public gatherings, such as those recently announced by New York and California, they are more likely to be eligible for coverage. But most cancellation policies also require the policyholder to attempt to mitigate losses by, for instance, making a good-faith effort to reschedule the event before calling it off.

“Organizers have to be prudent businesspeople and do what they would do if they were not getting reimbursed,” said Lathrop GPM LLP partner Alexandra A. Roje, who represents policyholders. “Depending on the facts of the situation, you may be able to negotiate with your vendors or seek to reschedule. However, I can guarantee that if you’re not attempting to reschedule and you’re just throwing up your hands and saying ‘Okay, I’m going to refund everyone and then go chase my carrier,’ that is going to be a problem.”

Pillsbury Winthrop Shaw Pittman LLP partner David Klein said he has been in contact with conference organizers who reported they had recently purchased event cancellation policies with express communicable disease coverage for an additional premium. But according to Klein, upon receiving the policies, the organizers discovered they contained exclusions specifically for coronavirus — with no reduction in premium.

“That is a violation of state insurance regulations in every jurisdiction I know of,” said Klein, who counsels policyholders. “That is likely to be a litigated issue. It speaks of panic in the insurance industry that they’ve tried such a bait-and-switch.”

Business Interruption

The COVID-19 outbreak has dealt a significant blow to the global economy, as many companies have had to temporarily shutter their own properties or experienced breaks in their supply chains.

Attorneys told Law360 that these economic woes have generated disputes over two types of commercial property insurance: business interruption coverage, which covers a policyholder’s losses from having to shut down abruptly, and contingent business interruption, which kicks in when losses result from the closure of a policyholder’s supplier.

For either type of insurance to apply, there must be proof of a “direct physical loss” to a property — in the case of business interruption coverage, the policyholder’s property, or in the case of contingent business interruption, the supplier’s property.

If a property has been shuttered merely due to fears of the coronavirus, but the building remains habitable, the direct physical loss requirement won’t be met, according to attorneys.

“We’re shutting down as a global community not because property is impaired but because people are impaired,” said Wilson Elser Moskowitz Edelman & Dicker LLP partner Paul S. White, who represents insurers. “The practical nature is that there may be some direct physical damage or physical loss to some property, but it is probably going to be the exception to have a direct physical loss rather than the rule.”

If, however, an infected person has been inside of a property and physically contaminated it, that may be enough to meet the direct physical loss requirement, attorneys said.

“The ongoing research on COVID-19 indicates it may last longer in environments that are not hospitable, so it is possible that this will be a livelier coverage issue than it has been in the past,” said Klein.

Even if the initial threshold for a direct physical loss is met, though, the policyholder could run into other problems depending on the wording of their policy. Some commercial property policies with business interruption coverage contain exclusions for property damage arising from pathogens, bacteria, viruses and other disease-causing agents.

“Those may very well come into play in a scenario in which an infected person has been inside of a property, if that could somehow otherwise trigger coverage,” Foggan said.

Workers’ Compensation

Workers’ compensation insurers could soon face an influx of claims from workers who say they contracted COVID-19 while on the job.

A recent report by Michel Leonard of the nonprofit Insurance Information Institute predicted that workers’ comp providers would be one of two categories of insurers to experience the greatest impact from the coronavirus pandemic, along with health insurers. According to the report, the brunt of that impact will be felt by carriers providing workers’ comp coverage to hospital workers, EMTs, police officers and firefighters, as well as workers in “high-risk” sectors such as entertainment, manufacturing, transportation and retail.

Attorneys told Law360 that the success of these workers’ comp claims will depend on whether the employees’ exposure to the virus was sufficiently tied to their work. That test is known as “work relatedness.”

“Generally speaking, cases in which an employee is exposed to coronavirus onsite likely wouldn’t be considered workers’ comp cases, unless the exposure was sufficiently intertwined with the job,” Foggan said. “This is already true of situations in which an employee catches a cold or the flu.”

In the case of first responders, it should be fairly easy to demonstrate work relatedness, given that they regularly deal with populations that are more vulnerable to infection, according to attorneys. But for other workers, even those in customer-facing roles, it may be more of an uphill battle for them to prove that their exposure to the coronavirus occurred at work.

“In this situation, it may be difficult to trace the origin of the illness,” Klein said.

General Liability

General liability insurance carriers will likely be pulled into the fray as companies face lawsuits over allegedly failing to protect customers from the coronavirus.

On March 9, Princess Cruise Lines Ltd. was hit with a first-of-its-kind suit by a South Florida couple who claimed the cruise company acted with gross negligence by failing to take precautions to prevent a coronavirus outbreak on one of its ships after two passengers on the previous sailing disembarked with symptoms. According to attorneys, similar litigation is almost certain to follow as the pandemic unfolds.

“All companies I know of are thinking about protocols to minimize harm, and a failure to do so may give rise to liability,” said Klein. “For example, now that many colleges and universities have decided to end classroom instruction, any college that is a laggard in adopting that approach could later be viewed as negligent.”

Claims of negligence resulting in bodily injury typically fall under “Coverage A” of standard general liability policies. However, one of the prerequisites for coverage under that prong is that there be an accidental “occurrence,” and some plaintiffs may say that companies deliberately ignored critical information that could have prevented the spread of coronavirus.

“You will definitely see a debate around whether there was an accident in these types of cases,” said McCarter & English LLP partner Sheri Pastor, who is president-elect of the American College of Coverage Counsel, an association of insurance attorneys.

Pastor said that, depending on the circumstances, companies may also be able to turn to “Coverage B” of their general liability policies, which includes coverage for the personal injury offenses of false detention and imprisonment.

“If a person alleges they were improperly detained and quarantined, that coverage could definitely apply,” Pastor said.

Even if a company succeeds in triggering coverage under one or both prongs of a general liability policy, some insurers may invoke standard exclusions for claims of property damage or bodily injury stemming from exposure to a “pollutant” or “contaminant,” as courts could read those terms broadly enough to encompass the coronavirus. 

“The premises liability situation could be one in which a pollution or contamination exclusion could be implicated,” Foggan said.

–Editing by Adam LoBelia.

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Business Basics – 101

Part 3 – The Importance of Entrepreneurs to the Creation of Wealth

There are two ways to succeed in business, either to rise through the ranks of a large company or to become an entrepreneur. Working for others offers the advantages that somebody else assumes the company’s entrepreneural risk and provides you with benefits, like paid vacation time and health insurance.

Becoming an entrepreneur is risker but more exciting. Owning your own business allows you to reap its profits or to fail. As an entrepreneur you don’t receive benefits, such as paid vacation, day care, a company car or health insurance. You have to provide them for yourself. But you gain the freedom to make your own decisions, opportunity and possible wealth, so the trade off can be worth the effort. Part of your due diligence before taking on the challenge of starting your own business should be to study successful entrepreneurs to learn the process.

Economists have identified five factors of production that seem to contribute to wealth:

  • Land/natural resources. Land and other natural resources are used to make homes, cars and other products.
  • Labor/workers. People have always been an important resource in producing goods and services, but many people are now being replaced by technology.
  • Capital. This includes machines, tools, buildings, and whatever else is used in the production of goods. It might not include money; money is used to buy factors of production but is not always considered a factor in and of itself.
  • Entrepreneurship. All the resources in the world have little value unless entrepreneurs are willing to take the risk of starting businesses to use those resources.
  • Knowledge. Information technology has revolutioned businesses, making it possible to quickly determine wants and needs and to respond with the desired goods and services.

Traditionally business and economics textbooks emphasized only the first four factors, but the late management expert and business consultant Peter Drucker said the most important factor of production in our economy is and will always be knowledge.

When we compare the factors of production in rich and poor countries, we find that land is not the critical element for wealth creation; numerous poor countries have plenty of land and natural resources. Nor is labor. Most poor countries have plenty of laborers who need to find work to make a contribution, thus they need entrepreneurs to create jobs for them. In addition capital, such as machinery and tools, is now fairly easy for companies to find in world markets, so capital is not the missing ingredient either. In fact, capital is not productive without entrepreneurs to put it to use.

What makes countries rich is a combination of entrepreneurship with the effective use of knowledge. Entrepreneurs use the knowledge they have learned in order to grow their businesses and increase wealth. The business environment either encourages or discourages entrepreneurship, which helps explain why some states and cities in this country grow rich while others remain relatively poor.

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Policies are great — but you need procedures, too

I have the privilege of working with many nonprofits to create or update their gift acceptance policies. This policy is the set of guidelines adopted by your board and/or senior leadership, that balances the need for fundraising with the risk the organization is willing to take in accepting various types of gifts.

For example, taking cash is a no brainer. It’s fairly easy to know when the gift leaves the donor’s hands and gets to the nonprofit, there’s no question about what it’s worth, and the nonprofit can use it right away without any additional steps.

I’ve always put publicly traded stock in the same category as cash, but I recently had two colleagues tell me how they’d never want their nonprofit to accept stock as a gift. I was stunned, so wanted to hear their stories.

One colleague told of the donor who asked for the nonprofit’s bank account information to make a stock transfer through the automated system. The nonprofit gave the donor their regular checking account information, though (they didn’t have a brokerage account), and the transfer never went through. No one caught it until much later, when the value of the stock had decreased, making the donor’s gift much smaller.

Another colleague told me of the donor who handed him stock certificates as a gift. He took them to the bank and couldn’t deposit them in the nonprofit’s account because additional documentation was required from the donor. My friend ended up making multiple trips back to the donor to complete the documentation, all the while worrying about keeping those valuable stock certificates safe.

Both of these stories illustrate how a policy that says you’ll accept stock as a gift from your donors doesn’t give you or your staff all the tools you need actually to accept these gifts. You’ll also need procedures that give step by step instructions on how to receive, deposit, credit and probably liquidate that stock. Receiving stock through an automated transfer to your brokerage account is quick, safe and easy for your donors, if the account is established and you have the transfer instructions readily available. Receiving stock certificates is similarly quick and easy if you have all the additional forms and documents your bank will require to document the transfer and allow you to deposit in your brokerage account.

Your financial institution can and should help you develop those procedures. Check with your representative and don’t leave this easy money on the table!

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Business Basics – 101

Part 2, Business and Wealth Building

Standard of Living and Quality of Life

Entpreneurs such as Sam Walton (Walmart), Bill Gates (Microsoft), Jeff Bezos (Amazon) and Sara Blakely (Spanx) not only became wealthy themselves, they also provide employment for many other people.

Businesses and their employees pay taxes that the federal government and local communities use to build hospitals, schools, libraries, playgrounds, roads and other public facilities. Taxes also help keep the environment clean, support people in need, and provide police and fire protection. Thus, the wealth businesses generate and the taxes they pay help everyone in their communities. A nation’s businesses are part of an economic system that contributes to the standard of living and quality of life for everyone in the country.

Standard of living refers to the amount of goods and services people can buy with the money they have. The United States enjoys a high standard of living largely because of the wealth created by its businesses.

Quality of life refers to the general well-being of a society in terms of its political freedom, natural environment, education, health care, safety, amount of leisure, and rewards that add to the satisfaction and joy that other goods and services provide. Maintaining a high quality of life requires the combined efforts of businesses, non-profit organizations, and government agencies. Remember, there is more to quality of life than simply making money.

Responding to the Various Business Stakeholders

Stakeholders are the people who stand to gain or lose by the policies and activities of a business and whose concerns the business needs to address. These include customers, employees, stockholders, suppliers, dealers (retailers), bankers, people in the surrounding community, the media, environmentalists, competitors, unions, critics and elected government leaders.

A primary challenge for organizations in the 21st century is to recognize and respond to the needs of their various stakeholders. For example, the need for the business to be profitable may be balanced against the needs of the employees to earn sufficient income or the need to protect the environment. Ignore the media and they might attack your business with articles that hurt your sales. Oppose the local community and it may stop you from expanding.

Staying competitive may call for outsourcing. Outsourcing means contracting with other companies to do some or all of the functions of the company, like its production or accounting tasks. Insourcing is the opposite side of that coin, which can create many new jobs to help offset those jobs being outsourced. While it may be legal and profitable to outsource, is it best for all stakeholders? Business leaders must make outsourcing decisions based on all factors; pleasing stakeholders is not easy and often calls for trade-offs.

Using Business Principles in Non-Profit Organizations

Despite their efforts to satisfy their stakeholders, business can’t do everything needed to make a community all it can be. Non-profit organizations, such as public schools, civic associations, charities, and groups devoted to social causes, also make a major contribution to the welfare of society. A non-profit organization is an organization whose goals do not include making a personal profit for its owners or organizers. Non-profit organizations often do strive for financial gains, but they use them to meet their social or education goals rather than for personal profit.

Your interests may lead you to work for a non-profit organization. You will still need to learn and understand business skills such as information management, leadership, marketing and financial management.