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Business Newsletter-January 2018


2205 Point Blvd., Suite 200 | Elgin, Illinois 60123
847-741-1000 | www.lundstrominsurance.com | Fax 847-428-8857

"Serving you, your business and your community since 1956"

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Vol. 26 No. 1

Effective Cost Management Builds a Solid Foundation

From the smallest proprietorship to the largest international conglomerate, arbitrarily cutting costs can be a "quick fix" for improving the bottom line in a challenging economic climate. However, some cost management techniques may not be in the best long-term interest of an otherwise thriving company. 
Many business owners respond to unexpected pressures by reducing costs without a definitive plan of action; their course is reactive instead of proactive. However, this type of action may be shortsighted unless in accordance with the company's business plan. While cutting payroll costs, for example, may at first appear to alleviate an immediate problem, sometimes only the symptoms, rather than the root of the problem, have been addressed. Regardless of the size of your business, effective cost management is needed to build a solid foundation for the future. 

Taking Control

The focus of a plan with more vision would entail managing costs rather than simply cutting costs. Managing costs is a proactive process of consciously choosing to spend in areas with the potential to produce a positive financial return. On the other hand, cutting costs is a reactive process, which typically happens when a situation seems to be escalating "out of control." 
While both courses of action strive to eliminate waste, effective cost management relates costs to profits, whereas cost cutting is not necessarily related to profits. A haphazard approach could result in an illusion of a better bottom line, when in fact productivity and profitability may be slipping. 

Building Blocks for an Action Plan

Define the relationship between costs and revenues. What are your sources of income? Some businesses are product-based, while others are service-oriented. Your business might depend on a combination of both. Understanding your revenue structure will create an awareness of the costs entailed in generating the revenue stream. Which costs are directly related to producing revenue, and which are general overhead? 
Reduce inter-departmental complexity. In any company or organization, the operations of one department affect the others. Is the work being accomplished efficiently or are there unnecessary steps in the process? Are there redundant practices? Do people communicate effectively? 
Encourage employee involvement. Most employees develop an expertise as time goes on in what they do because they do it every day. Establish a rapport with personnel by seeking their advice and tapping into their creativity. Ask your employees for input before making decisions. By soliciting their suggestions for specific cost problems, you may not only gain a new perspective, but in the process, motivate your workforce to become part of the solution. 
Measure decisions against your business strategy. Effective cost management decisions must be measured against your long-term business strategy, rather than within the confines of a short-term plan. For example, if one of your suppliers has reduced prices to get rid of excess inventory, what are you accomplishing if you buy more than you need for your customers? How will your cash flow be affected? Will you be stuck with excess inventory if the market changes unexpectedly? 
In a competitive and unpredictable marketplace, effective cost management is an important component of any successful business. By being aware of your expenses and how they impact the bottom line, you will be in a far better position to create a solid foundation for your business so it can thrive over the long term. 

Filling the Gaps with Endorsements

Companies may find it challenging when searching for affordable insurance policies to meet all of their business needs. Businesses concerned with stretching coverage over a wide range of potential risks may broaden those policies by obtaining endorsements. Endorsements address exclusions and limitations under a basic insurance program. There may be many choices available for filling gaps in coverage. 
Let's review a few options that may help provide some additional protection for your company: 
  • Contingent business income insurance. If a company depends on other businesses, such as manufacturers, suppliers, or distributors, its revenue stream could be seriously affected if those businesses were to suddenly shut down in the event of a fire, storm, or other natural disaster. Contingent business income insurance covers a business for losses that occur under such circumstances. 
  • Accounts receivable endorsement. Suppose a company's accounts receivable records are destroyed by fire or another calamity. An accounts receivable endorsement covers a business for any amounts that are uncollectable as a result of the loss, as well as for the costs of collecting the accounts and recreating the records. 
  • Peak season limit of insurance. During a company's most productive season(s), higher levels of inventory may need to be maintained to cover increased sales. However, if a catastrophe were to occur, the losses sustained could exceed the amount of insurance carried. A peak season limit of insurance endorsement offers a higher amount of coverage during a company's particular period(s) of high demand. 
  • Spoilage coverage. Businesses that handle perishables must often maintain controlled conditions to prevent spoilage. A spoilage coverage endorsement protects a business against losses caused by power and equipment failure or general contamination resulting from incidents that are beyond the company's control. 
  • Ordinance or law coverage. If a covered peril—such as a fire or tornado—damages a business's property to the extent that the law requires it to be demolished or completely renovated, ordinance or law coverage insures for the loss, providing the extra coverage needed to rebuild or repair a building in compliance with the most recent local building codes. Individuals who own large stakes in real estate may be particularly interested in this endorsement because of strict building codes and other safety requirements. 
  • Hired and non-owned auto liability. Hired auto coverage protects against claims arising out of the use of vehicles leased (on a short-term basis), hired, rented, or borrowed by your business. Non-owned auto coverage protects employers whose employees use personal vehicles for business purposes, such as driving to a sales meeting or the office supply store, and who could be held legally responsible for an employee who is involved in an accident. A hired and non-owned auto liability endorsement helps protect businesses against these risks. 
  • Coverage for injury to leased workers. Contract or temporary (leased) workers are a major segment of today's workforce for many businesses. If such workers are not covered by the employment agency's workers compensation policy, an endorsement on the lessee's policy protects these workers for injuries sustained while on the job.

Tying Loose Ends Together

Gaps in a company's business insurance coverage can create significant risks to its operations and employees. Obtaining additional endorsements helps provide an added measure of protection in the event of an unforeseen catastrophe. 
To help ensure that you and your business are properly covered, please contact one of our professionals. 

Did You Know?

Digital Talent Gap 

Capgemini and LinkedIn recently released a report on the digital talent gap. The report found that almost 50% of employees are investing their own money and time to develop digital skills. In addition, 54% of the organizations said the digital gap is adversely affecting their digital transformation programs and that they've lost competitive advantage. Budgets for training digital talent have remained flat or decreased in 52% of the organizations. And 50% said they are not doing much to bridge the gap. 

No Fear of Cyber Attacks

According to the latest Small Business Snapshot from Paychex, 68% of small business owners are not worried about their business being hacked. The same survey found that 90% of small business owners are at least somewhat confident that their business would be able to recover from a hack, should it happen. Furthermore, 10% reported having been the victim of a small attack and 9% of a large-scale attack such as Ransomware or Wannacry. 

Employees' Premiums Rise

According to the 2017 United Benefit Advisors Health Plan Survey, premium renewal rates for employer sponsored health insurance rose an average of 6.6%. Furthermore, average employee premiums for all employer-sponsored plans rose 4.5% for single coverage and 3% for family coverage. In addition, prescription drug plans with four or more tiers are exceeding the number of plans with one to three tiers. And, 72% of prescription drug plans have four or more tiers.

Insurance Certificates: The Key to Effective Risk Management

If your business hires contractors and other vendors, it is important for you to confirm that these vendors have appropriate insurance coverage. In the event of a problem caused by the work of a hired subcontractor, you may be held liable if that vendor does not have proper coverage. One key element in an effective risk management program is to maintain an accurate and complete record of all insurance certificates, which are documents that detail both the amounts and types of insurance held by an individual or a business. Here are a few hints to help you get organized:
  • insurance papersEstablish a risk management department or group to manage incoming contracts, agreements, and insurance certificates. Employees working in this department may be responsible for receiving and reviewing insurance certificates.
  • Keep copies of all insurance certificates and file the original certificates with the appropriate contracts, purchase orders, and agreements.
  • Create a filing system to track and monitor insurance certificates, and establish procedures to promote efficiency when receiving and reviewing updated insurance information. It is often recommended that businesses establish a schedule of certificate follow-ups, based on the nature of the work and the relationship with the business from which a certificate is requested. For instance, if a company establishes a six-month working relationship with a contractor, it may be advisable to obtain a certificate prior to commencement of the work and again at three months. In many cases, especially where the risk of loss is small, an annual check may suffice. 
These simple steps toward organizing insurance certificates will help you control your business risks and avoid any liability associated with other vendors with whom you work. As your business grows and expands with new partners, it is important to review your insurance coverage periodically to determine the coverage that is right for you. For assistance in managing your insurance certificate management program, contact one of our qualified insurance professionals.

For Your Information 

Ergonomically Incorrect? 

As technology continues to advance, you and your business may become increasingly dependent on computers. If you, or your employees, spend most of your time working at a computer, you may find the American Occupational Therapy Association's (AOTA) website helpful. It offers tips to help ensure you are seated in the most ergonomically appropriate position. For more information, visit the AOTA online at www.aota.org

Small Business Standards 

Is your business really a small business? The Department of Commerce's (DOC) Office of Small and Disadvantaged Business Utilization, in association with the Small Business Administration (SBA), offers a list of criteria for classifying small businesses on their website www.osec.doc.gov. This site also offers answers to many frequently asked questions, such as "Does the DOC offer business loans or grants to start or expand a small business?" 

Sales Tax

If you are gearing up to say goodbye to the "daily grind" and put your business on the market, you will want to be aware of the tax consequences. The Internal Revenue Service (IRS) provides useful information to anyone who is preparing to sell, or has already sold, his or her business. For more information on the tax implications of selling your business, visit the IRS online at www.irs.gov

Child Care Needs—Not Just a Family Affair

Family responsibilities still exist when working parents leave home and head for work. Child care, in particular, is a workplace concern that could affect an employer's bottom line if employees are unable to find reliable care for their children. When employees feel torn between their work duties and family obligations, productivity may decline, and absentee and accident rates may also increase. The more time and energy employees spend securing proper day care, the less they are able to focus on the job. 

Family-Friendly Options for Business Consideration

child careOnsite day care facilities are not a feasible solution for all employers. However, there are less expensive alternatives business owners could consider when grappling with the issue of child care, including the following:
Provide employees with referrals to child care resources in the local community by gathering updated information and distributing it to employees in a timely manner. This could be your least expensive option.
Offer flexible and part-time work schedules, especially during school hours. Part-time scheduling can allow you to tap into a pool of reliable employees who are unable to work full-time.
Assist with child care costs. This is obviously more expensive than providing flextime, but it could be an option in a flexible benefit plan where employees choose from a menu of benefits.
Provide a conveniently located day care facility, perhaps arranged in conjunction with other employers in the area. Start-up costs could be absorbed by the employer, with employees paying only for the service.
Family structure has changed tremendously in recent years. The need for reliable, affordable child care can't be ignored. The lost productivity and safety hazards resulting from employees who are unable to focus fully on their jobs could mean substantial costs for an employer. For most businesses, providing family-friendly options in the workplace may mean a more stable and productive workforce with less absenteeism.
Copyright © 2018 Liberty Publishing, Inc. All rights reserved.
 The content of this newsletter is taken from sources that are believed to be reliable. 
 However, this newsletter is not intended as a substitute for legal, financial, or professional counsel. 



2205 Point Blvd. Suite 200 | Elgin, IL 60123
p 847.741.1000 | f 847.428.8857