Rising health care insurance premiums are forcing employers to choose among undesirable lose-lose health care options.

Traditional options range along a continuum from passing through to employees all of the cost increase to dropping coverage altogether. Most employers choose a combination of reducing coverage and passing through a portion of the cost increase, a lose-lose scenario for both employer and employee.

Are win-win options available? The answer is a resounding, “Yes!” However, they all depend on an employer who is willing to commit to a program that encourages and rewards good health practices by employees.

The program incorporates four essential components:

1. Expand health care coverage to include alternative health care practitioners,
2. Encourage good health practices by employees,
3. Insure only against major health care expenses, and
4. Assure discounts from health care practitioners for routine health care costs.

This program, properly implemented, keeps health care costs at manageable levels and develops healthier and more productive employees. Each of these four essential components will be addressed in subsequent blogs.

If you would like to explore these programs for you or your business, send an e-mail to earlkemper@iib.ws.

Well here we are approaching the holiday season once again.  After which of course, will also serve to signifying the end of one year and the beginning of the new one to come.

Have you made your plans for your business as you move into this New Year?  Are you ready for what awaits you and your business?  Are you concerned about the current economic climate? If you have not thought about it, you should very soon.  Many business owners use the last few weeks to run reports and scramble to reduce taxes but often fail to give enough thought to the upcoming year.

My recommendation to you as a business owner is to sit down and take measure of yourself and your business.  Decide what it is you really want to achieve and then develop a plan to in fact achieve it.  Some may call it strategic planning yet others may refer to it as goal setting depending on what it is you are actually planning for.  No matter what you want to call it, the fact is you need to do it  at least on some level. 

Someone once asked me…do you take a proactive approach to your P & L? I thought to myself, what an interesting question, since after all a P & L is a historical indicator of my company’s performance.  Well upon further thought, I got what he meant. Let us remember the numbers don’t have to drive the company, the company has to drive the numbers and you as a business owner have to drive the company. 

There are many reasons why you may need financial leverage in your business. Maybe the organization is in a strong growth phase and needs more employees, more products, better equipment, a bigger space, and a new (more expensive) marketing approach. Maybe it’s a start up and has a very compelling product or service and needs to get a small amount of funding to perfect it and bring it to market. Maybe you are experiencing a cash crunch and must invest in new inventory or cover operating expenses in between customer payments. Or maybe you want to bring a new product or service to market and lack the financial resources to take advantage of the opportunity.

Before I discuss ways that this can be accomplished, let’s discuss some important criteria to consider before looking for money. Most importantly, a business owner must be able to prove that taking this step now will have a significant return on investment. Only a serious market analysis and financial analysis can help you decide if this makes long term financial sense. This should include a realistic pro-forma showing how these invested funds will produce greater revenue and profitability. This is the “proof” needed to back up a compelling story. Consider the business plan as your story, and the pro-forma as the proof.

Another relevant point to consider is whether this is the right time to invest in growing the company. As Bijoy Goswami said in a lecture on the Bootstrap concept, “Entrepreneurs should consider a capital infusion as an amplifier”. The point being that money is how you scale a successful concept. A successful concept is best defined as a viable proven product or service that has all ready attracted an interested customer base. For growth oriented companies or new start ups, the more you can do without raising money or taking on debt the better.

During the Dot Com bubble and the new “Web 2.0” craze, many entrepreneurs built a sexy sounding concept or product and looked at the financing as the exit strategy. Raising money, particularly from investors seeking equity, is not the end goal. It’s merely a way to take what you are doing now and do it on a much grander scale. Some great companies emerged from the dot com crash. In the majority of cases they were smart in their timing and financing strategy. In some cases they were lucky enough to have a strong enough business to whether poor financial decisions. The majority of the companies that sought and received funding blew apart in the bust, the principals left with worthless stock they could use to wall paper their over priced San Jose apartments.

So, if you can prove it will make money and you know it is the right time to take that step, here are some guidelines.

The two options available for raising money are debt financing and equity financing. Debt financing has many faces, and more debt vehicles are available to business owners than ever before. The key components of a debt financed deal are the same for a business as they are for an individual looking to finance a car or a house. Generally the questions a financier may ask are: How much cash (equity) can you bring to the project? How is your credit (both personal and business credit)? How strong is your concept and can it be proven? Do you have collateral to offer if it does not work? If you have an existing venture the financier may have you prove that if things don’t go as planned you can continue to service the debt on existing revenue. The financier can be an individual, a group of individuals, or an institution like a bank, private lender, or a private firm. Usually you must have an existing business or a very well planned and well funded start up to attract debt financing.

Some popular debt vehicles are term loans, lines of credit, receivable financing or factoring, purchase order financing, equipment leases, and real estate loans. Convertible debt to equity financing or claw-backs (equity to debt) are popular institutional instruments (think: the TARP Bailout). Smaller, high margin businesses can utilize collateralized credit card receipts or contract financing. Asset rich companies can take advantage of equipment or real estate lease backs. If your company is a start up, you may have to depend on loans from friends and family, credit cards, or tying up personal assets to fund the business venture. During the current economic climate, regional banks are far more likely to offer credit than many of the majors. The problem is that everyone knows it and they have been flooded by loan requests. Alternative lenders such as equipment lease companies and receivable financiers have become invaluable to existing firms seeking capital.

For a financier to consider equity financing, there are different criteria to explore. From the perspective of the entrepreneur, they must be willing to give up some percentage of ownership to attract an investor. The business concept has to be really strong and sexy to attract investors. Often this is the only outlet for certain start ups such as tech or biotech where investors are always looking for the next big thing, there are little tangible assets, but there is decent proof that this business concept will work. The other is in “risky” service industry businesses like bars, restaurants, dry cleaners, convenient stores, and retailers. In this case, unless it is such a uniquely marketable concept that an institution can see it going national fast (such as Applebee’s), you are left with attracting friends and family and interested local investors to partner with you in your business. Another instance where it may make sense to attract equity investors is if the business owner would be in a position to take on debt financing but lacks the equity (cash) portion of the deal. If real estate is in the equation, lenders often look for owners to produce 20% of the money needed to complete the transaction. If the owner lacks capital, taking on some form of private investment may be the only way to get the deal done.

As with debt financing, the current economic climate has changed things. Collateral has become more important, whether it be Intellectual Property or hard assets. Early stage investors such as angle groups have become much more selective and the larger firms such as VC’s and Private Equity groups are looking for companies with proven records and strong growth potential. This makes timing an even more important issue. The longer you can do without, the better.

In either case some key questions should be explored carefully. Is this the right time to seek funding? If so and you decide you have the right credentials, how much debt can you realistically take on while maintaining profitability and servicing the debt? Which kind of debt vehicle is best for your business and situation? If you take on equity investors, how much control are you willing to relinquish? How much revenue (and profit) are you willing to give up? What kind of investors do you want to attract? Someone who has a say in the business operations such as a general partner, or limited partners that have little say but expect a big return? Is the idea so good that having a small piece of something big is better than having nothing? Who do you approach and what do they require as far as documentation? These are the kinds of questions I help business owners answer, as well as helping with investor relations, business planning, and market analysis. For more information, feel free to email me at adammorehead@iib.ws.

Employers looking for ways to reduce the costs of health care may be interested in a new program available in Houston. The program encourages employees to practice healthy lifestyles and extends benefit coverage to alternative health care providers. Its emphasis is on improving and prolonging the health of employees by supporting the body’s tendency toward wellness.

The natural state of the human body is wellness. It is designed to return to good health when it becomes infected, injured, poisoned, burned, etc. When its cells or systems malfunction, the body initiates processes to identify and fix whatever is malfunctioning. Disorders of the body are either acute or chronic.

Acute disorders are those for which the body’s ability to heal itself functions properly. For example, if bacteria, viruses, fungi, or parasites, invade the body and attack its cells, the body launches mechanisms to overcome and kill those organisms.  These mechanisms may bring about fever, localized swelling, nausea, sneezing, coughing, watery eyes, or other symptoms, but over time, the body will heal itself.

Chronic disorders are those for which the body’s ability to heal itself goes awry. Left uncorrected, chronic disorders will get worse with the passage of time. Chronic disorders have been associated with advanced age, but today even young people suffer from them. The costs of treating chronic disorders are the primary reason for the rapidly rising costs of health care.

Treatments used by health care professionals rely on the body’s ability to heal itself. Treatments will vary dramatically by type of health care professional. In broad terms, health care professionals are either medical (allopathic) doctors or alternative care doctors.

Allopathic doctors focus on sicknesses. Allopathic doctors first diagnose the disease or disorder, then they administer the standard medical treatment protocol for that condition. Common treatments for both acute and chronic disorders are drugs. Since almost all drugs treat the symptoms and not the cause, chronic disorders often intensify because the body’s self-healing mechanism continues to malfunction. Further, long-term use of drugs creates undesirable complications. Doctors treat those complications with other drugs and patients embark on a slippery slope of long-term, multiple-drug dependency. If chronic illnesses progress beyond the ability of drugs to cope with the symptoms, the treatments escalate to the use of hazardous processes (radiation and surgery) and the costs of the medical treatments increase rapidly. The spiraling costs of allopathic treatments for chronic disorders drive health care costs to ever higher levels.

In contrast, alternative care (non-allopathic) doctors focus on wellness. Treatments utilize non-toxic and non-hazardous materials and procedures to return the body to its natural state. Alternative care doctors look for clues about how and why the body drifted from its natural state. Once they reach a conclusion, they recommend certain remedies, rarely drugs, to help the body heal itself. If the remedies address the cause, the body returns to its natural state and the chronic disorder goes away.

Addressing the causes of chronic illnesses can often be a simple and cost-effective option for chronic disorders. Preventing chronic illnesses and delaying their onset by adopting healthy lifestyle practices can be even more cost effective.

Evidence of the effectiveness of alternative care treatments of chronic disorders abound. Books and articles written by respected health care professionals maintain that lifestyle and other adjustments can have a very positive impact on chronic disorders. Their claims are supported with sound logic and published research.  

Employers wanting to add alternative health care options to their benefits packages can be hindered by strong ties between the health insurance industry and the allopathic medical community. Insurance policies rarely cover alternative health care practitioners and remedies. In addition, insurance companies rarely offer incentives to change behavior. Therefore, the costs of bringing about lifestyle changes in employees’ behavior are left to the business owner.

Programs that include alternative health care professionals are being developed and adopted in the greater Houston (Texas) area. These programs are designed to hold down health care benefit costs and to improve the long-term health of employees.

If you would like to explore these programs for you or your business, send an e-mail to earlkemper@iib.ws.