Author Archives: Rebecca Larsen

Financial Statements

Momentum builds to soften accounting standards for private companies

Private companies say they need to stop being treated like public companies. And now the accounting world has begun to listen to their complaints.

The debate about whether to soften accounting standards for private companies has gone on for years, but this time it seems to be moving toward action, although slowly. But this past summer, the parent organization of the Financial Accounting Standards Board (FASB) created a new Private Company Council to discuss possible changes in the U.S. Generally Accepted Accounting Principles, better known as GAAP.

The theory behind the move is that the GAAP standards may not always be necessary for private companies, particularly small and medium-size businesses. The council will develop a framework for deciding whether the users of private company financial statements have unique needs and will look at ways to reduce the complexity and cost of preparing private company financial statements as is now the case under GAAP.

Private companies contend that since they don’t raise capital from the public, they shouldn’t have to meet the same expensive accounting standards that publicly traded companies do. In many cases, they are also much smaller than public companies.

Right now, the FASB is seeking feedback on possible changes that could be proposed by this new council.

“They’re only at the talking stage in these standards,” said Ralph Nefdt, managing partner in the Phoenix office of the accounting firm of Grant Thornton. “But it’s a very important debate for standard setters.”

At the same time, the American Institute of Certified Public Accountants has issued its own proposed Financial Reporting Framework that small and medium-size privately held businesses could use to prepare their financial statements when U.S. GAAP is not required. The AICPA is seeking comments on this proposal and expects to finish this framework by 2013.

In the case of the AICPA, a company’s management would have to decide whether or not to use the framework, and the institute would not have authority to require its use, said Ron Butler, Arizona managing partner for Ernst & Young.

“Auditors’ reports for financial statements prepared under the proposed framework would indicate that they were prepared on a non-GAAP basis,” Butler said.

Among major concerns about softening standards for statements is that many companies might report a very different financial performance under the new framework. And whether lenders, creditors and other users of financial statements would accept statements prepared under the AICPA’s proposed framework remains to be seen. “Many contracts, regulations and laws require the use of U.S. GAAP,” Butler said.

In other words there might be risks for businesses in using the AICPA framework because banks and investors might not accept anything other than GAAP standards. Some accountants might also resist the change.

But the AICPA’s plans could bring changes sooner. “This new framework could speed up the processes where an accounting change could occur,” said Richard Goldenson, managing partner of CliftonLarsonAllen’s southwest region based in Phoenix.

He also said that the framework could simplify standards for small and medium-size businesses but not reduce them: “The accounting principles comprising the framework for small and medium-size entities are intended to be the most appropriate for the preparation of the financial statements based on the needs of the financial statement users. Financial institutions in many cases do not require GAAP-based statements.”

Many small and medium-size businesses could realize cost savings because often they do not have the resources and expert staff to implement complex accounting requirements.

Some of the other key features of the AICPA proposal:
    It would be a principles-based framework, available for incorporated businesses and unincorporated.
    It is based on accounting principles commonly used or previously used for financial reporting.
    Historical cost would be the primary measurement basis.
    Fewer disclosures would be required than under U.S. GAAP.
    Fewer adjustments may be needed to reconcile tax return income with book income.
    It is intended to be used regarding issues that face small and medium-size businesses.

If the framework moves ahead as proposed, accountants, companies and regulators would have to go through an education process so that financial reports would be carefully executed. A company that wants to use the framework would need substantial lead time to switch over.

homebuyers - Arizona Business Magazine May/June 2012

Homebuyers Bounce Back

The rules have changed a bit, but it’s still a perfect time to purchase a home.

If you have good credit and a good job history and can put money down for a house, it’s a great time to buy, say experts in real estate and finance. In fact, the sooner the better, because it may soon turn into a seller’s market for housing.

And mortgage rates could be climbing as well. Mortgage buyer Freddie Mac recently announced that the average rate on 30-year loans had jumped to the 4 percent level for the first time in three months.

According to attorney Kevin Nelson of Tiffany & Bosco, whose practice focuses on mortgage and real estate, homebuyers can get very attractive packages if they have the solid down payments and credit. “Homeowners can also refinance if they have substantial value in their homes. But lenders are still very cautious about permitting homeowners to have lines of credit,” Nelson says. “And they probably still will be until the financial problems in Europe and unrest in the Middle East calm down.”

Both larger banks and mortgage companies say business is very good. “In the past 10 years, we have never done as many loans per month as we are doing right now,” says Tim Disbrow, regional sales manager for Wells Fargo Bank. “We are the No. 1 lender by a longshot for all mortgages across the state, including Fannie and Freddie and FHA.”

Although some in the lending industry say big banks are moving very slowly in making home loans and can’t keep up with the volume, Disbrow disputed that. “Consumers who go to banks for mortgages are just being asked to document their savings, job history and salaries, something that they weren’t asked to do in the boom years,” he says.

The same rules apply with all lenders now, he says, whether they are banks or mortgage companies. Customers everywhere have to meet the same requirements based on Fannie and Freddie guidelines.

For conventional conforming mortgages of $417,000 or less that are insured by Fannie Mae and Freddie Mac, down payments must be 5 percent or more. Down payments for FHA loans are 3.5 percent. Jumbo loans also seem to be widely available, but lenders generally do not sell them to Fannie Mae and Freddie.

“The big difference between us and mortgage companies is that customers may have to pay other loan originators more in fees,” Disbrow says.

Foreigners are helping fuel the rising demand for homes in the Phoenix area, but plenty of Americans are buying as well. Canada, New Zealand and Australia are well represented. Many foreign buyers pay cash, but some mortgage companies offer loan programs for them. Buyers are often investors attracted to the housing market by low home prices and the potential for high rents.

Eric Bowlby, president of AmeriFirst Financial in Mesa, estimated that about 40 percent of the homebuyers in Maricopa County are cash buyers, while 60 percent get mortgages.

Surprisingly, even those who lost their homes in a foreclosure or short sale can finance homes with mortgages, but they must put down fairly substantial down payments. They can even get an FHA-insured loan from three to five years after losing their previous home.

But to get a Fannie Mae-backed mortgage or one from Freddie Mac, someone who had a foreclosure has to wait from five to seven years. However, if a buyer can verify that some hardship led him or her to walk away from their property – like the loss of a job or an illness – they may get relief from the time requirements.

According to Bowlby, even if someone was upside down in their mortgage and walked away, AmeriFirst has a hard money hedge fund that will finance mortgages almost immediately for those who have the income to qualify and make a 25 percent down payment.

“Even those who are one day out of foreclosure or bankruptcy may be able to qualify,” he says, “but the interest rate is 12 percent.

The rate may be high, he says, but it’s still cheaper to buy than to rent because of the homeowner’s tax deduction and the current increases in rental rates.

ATTRACTING BUYERS

Recently, Wells Fargo announced that it is bringing a new pilot program to Phoenix in an effort to help stabilize housing markets.

The Neighborhood LIFT program, already available in Atlanta and Los Angeles, is designed to help communities attract qualified prospective homebuyers to neighborhoods that are struggling with high inventories of unsold homes.

In Phoenix, the bank has a five-year goal of making $3 billion in such loans. Prospective homebuyers can qualify for down payment assistance grants of up to $15,000, covering home and renovation financing and will also participate in home buyer seminars and tours of properties for sale. There are limits on the amount of income families can have and limits on the size of loans.

Arizona Business Magazine May/June 2012

 

social media tweet bird

Social Media: Turning Tweets Into Tourists

Used correctly, social media can pay off for the hospitality industry

Over the holidays, the JW Marriott Desert Ridge built a giant village out of 800 pounds of gingerbread and 250 pounds of chocolate to display in its lobby. For four weeks, the cookie town was posted on the JW Facebook page and fans were invited to guess how many gumdrops, pounds of dough, poinsettias and twinkling lights were decorating the resort. Winners received a weekend stay.

Did the campaign succeed?
Definitely, according to Jennifer Whittle, account supervisor with the Lavidge Co., which represents the resort. The goal was to increase fans on Facebook, a figure that doubled in a month. “Additional objectives were to drive traffic to the resort’s website and property,” she said, “and to position the resort as a fun place to visit.”

But still, just as with traditional advertising, marketing or public relations, it can be tough to measure how social media translates into revenue in the tourism industry.

Measuring whether this new medium is working depends on what a business wants to achieve, said Rebecca Seymann, Lavidge director of interactive campaigns. Some businesses believe that the more people who “see” them on Facebook or on a blog or in an app, the more awareness of their brand will grow, thus driving up sales.

But businesses do try to compute results. “Many hospitality businesses use social media, email, their websites and aggregators to promote special offers and then measure direct sales using a variety of tracking tools,” Seymann notes. And many use social media to respond to customer complaints as well.

One attraction of social media is that the cost of use seems minimal. Facebook, YouTube, and Twitter are all free. Writing the copy and getting the photos or videos for social media do cost something; as does monitoring the site. A cottage industry has grown to help businesses interpret the data from social media; but some measuring systems are still free.

“Facebook has metrics built in that don’t cost anything,” says Christine Carlson, advertising manager at Las Vegas-based Allegiant Travel, which flies out of Phoenix-Mesa Gateway Airport. “And we also use Google Analytics, which is free as well.”

So Allegiant can find out how many Web users click on its Facebook page and repost the page to other fans; how many viewers like the company’s site; even how many viewers switch from Facebook to the Allegiant Web site to book a trip. But if a Facebook user looks at the company’s website, signs off and then comes back four days later to book a trip, Allegiant can’t easily track that. In its brief time using social media, Allegiant has attracted more than 50,000 fans on Facebook.

social media icons

For some hospitality businesses, such as W Scottsdale, the main objective of a social media campaign is to “engage in conversation with our fans,” according to Joe Iturri, director of sales and marketing. The hotel uses Facebook and Twitter particularly to promote W happenings to fans first. The events often involve fashion design and music. “W often gives fans insider access, like sending information to them first about our big New Year’s Eve event,” he says.

But W’s use of social media can be even more up-close and personal in pursuing contact with potential customers. When fans post messages saying they will visit the hotel soon, W’s social media rep tries to chat online with them about their likes and dislikes. “We’ll ask what wines they like, for example, and when they arrive, we have a bottle of a great wine in their room. Or we’ll find out whether they like foam or feather pillows,” Iturri says. Facebook and Twitter get top billing. Other channels used: YouTube, FourSquare, Yelp.

When favorable posts come in about a past visit, W responds, too. Or if there is a negative review on TripAdvisor, “we contact the poster and try to resolve the problem to the best of our ability,” Iturri says.

In 2009, the hotel hired a full-time social media person to answer postings around the clock, Iturri says. That employee checks Twitter, Facebook and other channels several times — both night and day — on a laptop and responds to questions and postings both favorable and unfavorable. The first person to hold the job was so successful that she was transferred to the W Hotel headquarters to start national programs.

That all might work for a national or international company, but what about the little guy — the independently owned restaurant or boutique or small resort?

For smaller businesses, social media can pay off, too, says Josh Kenzer, online marketing manager for the Scottsdale Convention and Visitors Bureau. The big issue for a smaller business, though, might be the labor costs in maintaining an up-to-date Facebook page, for example, adding pictures and news regularly.

“A business owner needs to be honest about the time he can devote to it,” Kenzer says. “Here at the bureau, someone has to spend about 30 minutes to an hour a day adding new content. You also don’t want someone to post a message on your page that says, ‘I’m here this weekend and what can you do for me?’ and then you don’t reply to them.”

Social media is also not a silver bullet. “Like website management, pay-per-click, SEO and banner campaigns — and like print, radio, public relations — social media should become a regular recurring marketing activity and a budget line item that incorporates key marketing messages to target audiences,” says Seymann of the Lavidge Co.

Arizona Business Magazine March/April 2012

Medical Technology - AZ Business Magazine January/February 2012

Medical Technology: Increasing Longevity, Healthcare Costs

Advances in technology are great, experts agree, but costs need to mimic the rest of the economy.

As Arizona enters its second century and health care costs soar, we can’t help but ask: Has the technology that helps us live longer become too costly? Are we living too long? And who will pay for the high-tech advances that keep us going?

Leading healthcare experts in the Valley say our lifespan has increased, but not as much as most people think, they say. Though they agree that residents may have to work longer, most believe that is because of problems with the economy overall, not from the increasing cost of healthcare.

Technology has improved, they say, but the changes will soon get more amazing. Some of this will be costly, but improved technology can also make healthcare more efficient and less expensive in the long run.

And none of these experts believe Arizona residents live too long.

Medical Technology - AZ Business Magazine January/February 2012“I suspect that people used to say that humans were living too long back when people lived 50 years or 60 years,” said Dr. Vishu Jhaveri, chief medical officer and senior vice president at Blue Cross Blue Shield of Arizona. “People may have the instinct to want to live longer, but what they really want is to live longer and healthier.”

Dr. Ed Staren, president and chief executive officer at Cancer Treatment Centers of America’s Western Regional Medical Center in Goodyear, agrees.

“I certainly don’t think people live too long,” says Dr. Ed Staren, president and chief executive officer at Cancer Treatment Centers of America’s Western Regional Medical Center in Goodyear. “I greatly value the chance to learn from those more experienced than we are. The purpose of medicine runs parallel to the right of an individual to a healthy life, to empower them to pursue life to the best of their abilities.”

The mission statement for Blue Cross Blue Shield, Jhaveri notes, “is to improve the quality of life for all Arizonans, not just our customers.”

Healthcare and its new technology are not the major factors in a long life, says Dr. John Hensing, executive vice president and chief medical officer of Banner Health. Genetics, diet and nutrition and exercise are what count the most, he says.

“Do you smoke? Do you get regular exercise? What do you eat? Do you take care of yourself?” Dr. Hensing asks. “Those factors contribute much more to longevity. That being said, of course, there are certain people alive today because of improvements made in medical technology. These are people who 100 years ago would not have survived. But technology is only a modest factor in longevity.”

We do, of course, live longer and longer, but in general our lifespan has increased fairly slowly. According to the U.S. Census, the average life expectancy for men and women combined in the United States was 78.3 years in 2010; it was 76.8 years in 2000.

So how will we pay for the health care that gives us extra years and stronger bodies?

“The new technology allows us to be more efficient in the cost of delivering care,” says Dr. Greg Mayer, senior vice president of the Hospice of the Valley.

Those cost-saving methods can include electronic transmission of medical records; video visits to the doctor for routine illnesses; or even robotic surgery with the robot controlled by a doctor who is hundreds or thousands of miles away from the operating room.

“Many areas of technology are very high in cost, and we’re all aware that the increases in these costs cannot be sustained in future,” Dr. Mayer says. “If we aren’t smarter and more efficient in our use of health care, it won’t be helpful. It will just be fancier care.”

In the drive to cut expenses, he says, patients will probably find that less complicated medical care will be delivered by highly qualified middle level personnel like nurse practitioners, rather than doctors. “There have to be changes because we can’t sustain the current system financially. There aren’t even enough physicians to meet all the needs,” Dr. Mayer says.

Of course, medical technology has brought on major changes in how serious diseases are treated, the doctors say. Cancer is a prime example.

When Dr. Staren of the Cancer Treatment Centers of America started practicing in the 1980s, the bulk of cancer diagnoses were based on just looking at the size and shape of a tumor or on what could be seen by analyzing cells under a microscope. Treatment was limited to drugs and chemotherapy that had not changed much in 25 years.

Now, doctors have electronic equipment to look at cancers on the molecular level and differentiate among individual tumors and types of cancer. Targeted therapies can use drugs to block the growth and spread of cancer by interfering with specific molecules involved in tumor growth. These targeted therapies may be more potent than chemotherapy and radiotherapy and less harmful to normal cells.

“Now, cancer is being treated as a chronic disease, much like diabetes,” Dr. Staren says.  “There have been true paradigm shifts in treatment.”

It’s possible to treat tumors with minimal access to the body by delivering drugs through small pinholes in the abdomen, chest or brain. “This is process innovation that can result in lower costs and reimbursement,” Dr. Staren says.

“Right now, we’re going through transformation of our health care and how it’s paid for,” Dr. Hensing says. “We’re in a period of non-sustainable growth of costs. That has to change. The growth of costs must flatten out to a cost trend that looks like the rest of the U.S. economy – whether health care is paid for by employers or the government or both. We need a better way to deliver services, and they will be delivered in a more economical way. It will take the better part of a decade to do it.”

“There is unquestionably a much better prospect for better quality and Medical Technology - AZ Business Magazine January/February 2012quantity of life due to technology,” said Dr. Rafael Fonseca, deputy director of the Mayo Clinic Cancer Center. “But escalating costs remain a challenge.”

Costs are higher in the United States than around the world, he says, but that’s partly because the U.S. carries most of the cost of research and development. He sees room for containment of costs. “The notion that everything has to be managed by doctors must change,” Fonseca says. “Nurses can get a history and do a medical exam;. There can be electronic consultation. Nurses can deal with day-to-day problems with specialists handling individual cases.”

Here are the five things that Valley experts say will shape health care in Arizona as the state enters its second century:

Medical Technology

More improvements, including less invasive surgery, targeted drugs and therapies.

Cost containment

More use of nurses and trained technicians to give care.

Medical education

Training for technicians and nurses so they can administer more care.

Lifestyle education

Promotion of better nutrition and more exercise.

Growth of facilities

New clinics and hospitals in Arizona attracting patients from around the world.

Arizona Business Magazine January/February 2012

Affordable Patient Care Act - AZ Business Magazine November/December 2011

Affordable Patient Care Act May Cause Businesses To Drop Healthcare Insurance

Although most small businesses in Arizona aren’t dropping their healthcare insurance plans right now, some are thinking about doing it when the Obama administration’s Affordable Patient Care Act is fully implemented in 2014.

Meanwhile, many small business owners are also looking for new plans that will save them money, but may also slash benefits for their employees.

“We’re not seeing a dramatic drop in coverage as of today, but small businesses are asking a lot of questions about the health care reform act,” says Jeff Stelnik, senior vice president of strategy, sales and marketing for Blue Cross Blue Shield of Arizona, which has more small group customers than most other health insurers in the state.

“Companies with from two to 49 employees are also thinking about whether it makes sense for them to drop their coverage. Those with from 50 to 100 employees and beyond are less likely to do that.”

On one hand, the smallest companies — from two to 49 workers — are not required to provide insurance for their employees in 2014 and are not subject to any penalties. Those with 50 or more employees will face fines for failing to do so. So that in itself makes it easier for the smallest firms to cancel coverage.

Another incentive for small businesses to end insurance benefits is that many now offer plans with high deductibles, ranging from $3,000 to $5,000, and requiring “strong” co-payments. These types of plans don’t meet the minimum requirements under the Affordable Patient Care Act. That means that as of 2014, they must upgrade their plans at great expense in order to keep insuring employees. Although some federal tax subsidies will be available to help small companies, it is still expected to be costly for small businesses to provide more generous health benefits to employees.

But even though the smallest businesses are considering dropping health insurance, “they absolutely would like to keep it if they can,” Stelnik says.

“If small employers drop coverage, they will probably give employees a bump in pay — another $50 to $75 in their paychecks,” says Thomas Katsenes, president of Katsenes Insurance in Phoenix. “But that’s not going to help those employees much when they go out to buy health insurance.”

One of his clients, who owns several fast-food franchises, is considering canceling an insurance plan it has for managers; the business does not cover other employees. The franchise corporate office provides no health insurance. “Those businesses most affected are the ones with fewer employees,” Katsenes says.

The full impact of the health reform legislation may not hit until 2014, but some changes already phased in have helped raise current health insurance costs by 15 percent and more, according to Katsenes.

“They’ve already phased in the mandated no-cost wellness benefits (like free mammograms for women) and the unlimited lifetime maximum costs for the insured, and they’re requiring coverage up to age 26 for children,” he says. “All these changes translate into higher premiums.”

Another broker, Bob Padgett, president of the Padgett Insurance Agency in the Phoenix area, hasn’t seen any cancellations yet, but some of his clients are looking at plans with $10,000 deductibles as well as partially self-funded insurance plans.

“Some businesses are reducing coverage for their employees, passing more of the cost on to them or no longer offering coverage,” says Donna Davis, CEO of the Arizona Small Business Association, a group in which 85 percent of the membership has 100 or fewer employees.

“In a recent survey of our members, 74 percent indicated that the cost of healthcare was a significant challenge to the future of their businesses,” she says. “Most businesses have seen consistent year-over-year increases even before the Affordable Patient Care Act was enacted.”

Some employers are investigating defined benefit plans that allow six doctor visits per year and pay a limited amount per day for hospitalization, Katsenes says. “I may have a client who will be going for that soon. He has 15 employees to insure.

“It’s unknown what lies ahead for small businesses,” Katsenes adds. “So far we’ve dealt with about 900 pages of regulations and another 100,000 pages lie ahead.”

[stextbox id="grey"]For more information about the Affordable Patient Care Act, visit healthcare.gov.[/stextbox]

Arizona Business Magazine November/December 2011