business insider magazine - volume 3 - issue 3 - 1st issue 2008

8/14/2019 Business Insider Magazine - Volume 3 - Issue 3 - 1st Issue 2008

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BUSINESS insider MAGAZINE

The South Bay Los AngelesBusiness-to-Business Magazine

Publisher & EditorDavid Whitehead

Contributing WritersEd Burzminski, Bob Gomez,

Ken Roberts, Angela L.H. Sayers,Brian Simon, Tony Traven,

Cayley Vos, David Whitehead,R. Boyd Zack

Graphic Design & ProductionDavid Whitehead & Susan L. Wells

Copy Editing & ProofingBrian Simon

Advertising Sales ManagerDavid Whitehead

Assistant to the PublisherAlexandra C. Hart

BUSINESSinsider MAGAZINEWelcomes Input From The Community:All Letters to the Editor should be concise andinclude the writers name, address and phonenumber. BIM will publish select letters address-ing relevant issues and topics discussed in themagazine. We will not publish street address,email address or phone number. If the editorcomments about a letter, the reader mayrespond with at least as many words as wereused by the editor. We would like to stimulate asincere dialogue. All letters become property of BUSINESSinsider Magazine and are subject toediting for length, content, grammar, punctua-tion, etc. Letters may be submitted by email to:

[email protected] mailed to:

BIM Letters to the EditorP.O. Box 1032Palos Verdes Estates, CA 90274

(310) 872-9732www.BusinessInsider.uswww.TheBizBoard.net

BUSINESS insider MAGAZINE makes everyattempt to provide business decision-makerswith current and accurate information. How-ever, BUSINESSinsider MAGAZINEdisclaimsany implied warranty about the correctness oraccuracy of information published in BIM andwww.BusinessInsider.us or its appropriatenessfor a particular purpose. You assume fullresponsibility for using the information and

understand and agree that BUSINESSinsider MAGAZINEis neither responsible nor liable forany claim, loss, or damage resulting from itsuse. Opinions and/or claims of BIM contribut-ing writers and advertisers do not necessarilyreflect the opinions of BIMs publisher.

2008 BIM Publications& BUSINESSinsider MAGAZINE

All Rights Reserved


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In This I ssueCOVER FEATURE:Building the South Bay Economy 1721st Century Development Trends

Tax Time Tax Information From South Bay Financial Pros 2225

The Alternative Minimum Tax 22Inflation Unleashes Antiquated Tax Law on Middle Class Families

The Capital Gains Tax Rate: Is Change on the Horizon? 24

New Tax Structure May Affect Your Retirement Accounts 25

Technology Insider Managing Your Digital Assets 6

How to Take Full Advantage of Search Engine Optimization and Pay Per Click 8

Stimulus Package Spells Relief for California 9

How a South Bay Corporation Moved TheirMission-Critical Operations Overseas 10

The Great Bubble Builders 12Publishers Perspective Column on the Federal Reserve

Transactional vs. Consultative Sales 26Pick the System Thats Best for Your Company

Calendar of South Bay Business Events 31

Are You Shoving Square Pegs in Round Holes? 34Instead, Make Sure The Job is a Fit!

Meeting, Event And Banquet Resources 39


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Publishers Message Build it and they will come.

This thesis statement ended badlyfor Bugsy Siegel. However, in theend it was phenomenal for LasVegas. The South Bay too has had its

share of setbacks, but always seemsto rebound well in the end. Afteryears of repositioning from the earlynineties aerospace turndown, theSouth Bay has found its stride onceagain and is evolving rapidly as afirst-rate Los Angeles business centerfor a much wider range of businessthan ever before. We themed thisissue Building the South BayEconomy so we could focus onrecent development trends that havelaunched our communities into the21st Century at full speed. Althoughlarge parcels of land are scarce, newopportunities are emerging on formerdefense industry properties andcreative developers are doingspectacular things to renovate otherexisting properties for corporate centers,industrial facilities, warehousing,retail and even a destination resort.The South Bay is truly coming of ageand the greater diversity of our newbusiness base gives added economicsecurity for the region as we edgeinto a slower economic period. Ourcover feature showcases select majordevelopments in progress, includingthe large-scale Campus El SegundoProject featuring mixed uses, withClass A corporate space, retail,restaurants and even a soccer field tointegrate it into the community.Terranea, set to open in 2009, brings

the only destination coastal resort inLos Angeles County to the South Bay.These and other smaller scaleprojects of note are covered in thisspecial issue dedicated to thedevelopments that will continue tobuild the South Bay economy foryears to come.

David WhiteheadPublisher


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of the daily operation of nearly every business in America, digi-tal assets have grown unchecked in many ways. If your businesshas ever created a PowerPoint presentation, a Word document,a spreadsheet, an e-mail message, a digital photograph usedwithin the business or any one of hundreds of types of files wecreate within our computers every day, you have created a digi-tal asset. While many of these are of little long-term value, someare extremely valuable while others carry extreme liabilities.

But what are you doing to manage the digital assets gener-ated by your business? If you run back-ups on your networkdrives and your desktop drives, you are taking at least thesmallest step in securing your digital assets. You are not, how-ever, managing those digital assets simply by backing themup. Digital asset management is far more than retention of

assets through back-up mechanisms.Have you ever searched for a file on your computer or net-work and not been able to find it? Have your searches everresulted in finding multiple copies of the file? And what aboutthat sinking feeling you get when you locate the file you are look-ing for only to find that it is not the correct version you need?

Digital asset management addresses these issues as well asa host of others. Additionally, it provides a wealth of benefitsworth considering.

As assets can become liabilities if not properly managed,effective digital asset management is certain to come intofocus over the coming years. Retention of information longerthan required can expose businesses to unnecessary discover-ies. Lack of retention can result in fines or judgments due toan inability to prove innocence. Lack of proper managementcan result in exposure of information unnecessarily.

Aside from the loss of assets and damage they can causethrough inadequate management of digital resources, severalindustries have learned that physical assets that are trans-formed into digital assets can take on a whole new value. Anexample of this type of asset is the recorded music owned byrecord labels back in 1998 that existed on master tapes, buthad never been downloaded over the Internet. Once the mas-ters are transformed into digital formats, the ability to exploit

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1 S T I S S U E 2 0 0 86 S O U T H B A Y B U S I N E S S I N S I D E R M A G A Z I N E

T E C H N O L O G Y I N S I D E R

I back up my files I dont need a digital asset

management system

THINK AGAINWHETHER YOU KNOW IT OR NOT,your company may own assets that arent recorded inyour books. These non-physical assets reside onlywithin the computer systems and file servers on your corpo-rate network. There are also assets that exist in a physical for-mat that are better used and exploited in a digital format.Non-physical electronic assets, or digital assets, are muchmore prevalent and prolific than many realize. Additionally,these assets can be vital to the health and well-being of abusiness and are often overlooked.

Think about it this way: The assets you normally keep trackof range from trash cans to desks. If you are a manufacturer, youinevitably have equipment, inventory and even raw materials inthe suite of assets that you manage on a regular basis. In a dis-tribution business, you will have your inventory as well as otherequipment, such as trucks or shipping equipment, as assets of your business. Even professional service organizations oftenhave some assets they keep track of even if those are less tangi-ble. Think of digital assets as you would of any of these assets of value that are part of your business.

Examples of digital assets are as diverse as the businesses

that create them without even thinking about it. A manufac-turing business often has specific methods that are used intheir manufacturing process that give them an advantage overthe competition. These methods may be recorded as instruc-tions, diagrams and formulas within the computer systemsused to run the business, or even kept as simple documentson someones desktop computer. The same manufacturingbusiness may have its marketing materials stored as files onthe company network. It may also have product specificationsheets, product images, designs and more all housed in elec-tronic formats. These types of digital assets are very importantto the business, but are rarely managed with the same level of care as the physical machines used within the business.

Now you may be saying to yourself, We are diligent aboutour back-up routines and always keep back-ups and archivesoff-site. Our digital assets are as secure as they need be. Whilethe first part of this statement should be true for all businessowners, the second sentence may not be as much of a given.Maintaining back-ups and archives of your business assets iscritical, but is not the same as managing your digital assets.

Lets take a closer look at the realm of digital assets and digi-tal asset management and determine if your business is at risk of losing some very valuable resources. Just as the corporate net-work has grown from a productivity tool to an indispensible part


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them for financial gain becomes veryreal. One of the threats of impropermanagement of digital assets is the lossof control of those assets, as has beenseen in the recorded music industry.

Yet another risk of mismanaged digi-

tal assets is the time and energy lossassociated with improper versions of files being used. From obsolete versionsof proposals sent to customers to a mis-directed e-mail message to outdatedversions of application software corrupt-ing a corporate database, improperlymanaged digital assets can cripple acompany very quickly.

The Spectrum of DAMSDigital Asset Management Systems (a.k.a.DAMS) are one way of starting to gaincontrol of digital assets in an organization.DAMS provide means of cataloguingassets in a manner that enable retrieval,retention and destruction. DAMS providesecurity measures to ensure the properaccess levels to assets, workflow automa-tion enabling more efficient use of resources, and remote access to assetswhen and where those are needed.

When searching for a digital assetmanagement system, the first thing toidentify is your objective. What solutions

should it provide to what problems? Doyou simply want to find your digital assetson demand? Collaborate between depart-ments? Increase efficiencies throughimproved workflow? Manage rights andpermissions complete with automatedtracking and accounting?

The DAMS suppliers offer a broadarray of solutions, ranging from enterprise-wide solutions to individual workstations.

Desktop solutions represent the sim-plest type of DAM. They serve the needsof individuals using relatively small col-lections of content. This model can beapplied to a handful of stations in a file-sharing network. While desktop solutionsallow for descriptions and keywordsearches, they typically only catalogthumbnails and references to the actualfiles as opposed to the files themselves.

A collaborative solution is the likelychoice if your objective is sharing work-in-progress and finished digital assets

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search engines. Plus, it takes time to add content, build a rep-utation, establish your niche and cultivate inbound links.

Because of this, Internet marketers will often use PPC togoose their position on the sponsored section of search engineresults pages in the hopes of getting enough traffic to turn aprofit in the months it takes to build a respectable level of organic SEO.

But savvy Internet marketers dont stop with this tactic. PPCcampaigns can also help build and support your SEO campaign.

The secret to this is in the way you manage traffic onceusers arrive at your website. Most ads are simply meant tomake a sale. But once a motivated buyer visits your site, youcan do a lot to ensure theyll return to it in the future.

Often websites let users opt in to receive a newsletter ordownload a white paper. The site may have a forum, blog orother interactive feature. If you regularly add valuable contentto your website, and you make sure your customers are awareof this, theyll come back for more. Using a set it and forgetit attitude will relegate you to the search engine round file.

Likewise, simply placing a banner ad can have an organicbranding effect. When users go to their favorite blog every


MANY SEARCH ENGINE OPTIMIZATION (SEO)experts will tell you that their way isthe only way: that free, organic trafficto your website brings the highest Return onInvestment (ROI).

But then youll hear advertisers who advocate the use of AdWords, banners, and similar Pay Per Click (PPC) tactics.Theyll point out that such campaigns only cost what theyreworth. If your website is new, PPC can help you make up forlost time and generate qualified leads immediately. Its a pow-erful argument against the lengthy process of SEO.

But the truth requires a broader view. This isnt an either-orsituation. To get the most profitable results from the onlinesegment of your business, its usually best to incorporate bothPPC campaigns and natural SEO. When used wisely, thesetwo techniques can support and enhance each other and pro-vide a higher aggregate ROI.

The Short View of Pay Per ClickMost SEO strategies take time. Simply being around longerthan a competing website gives you favored status in the

T E C H N O L O G Y I N S I D E R

How to Take Full Advantage of Search Engine Optimization and Pay Per Click

BY C AYLEY V OS


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The Economic Stimulus Act of 2008 passed by bothhouses of Congress and signed into law by the Presidentholds much promise for Californians. It provides a temporaryincrease in both the limits on FHA loans and conformingloans purchased by Fannie Mae and Freddie Mac in the sec-ondary mortgage market to $729,700 in certain high-costareas (like most of California) until the end of 2008. TheMortgage Bankers Association has written letters to HUD andthe Office of Federal Housing Enterprise Oversight to actquickly to establish new area median housing prices for eachMetropolitan Statistical Area (MSA). I believe raising the loanlimits for both conforming and FHA loans will be a substan-tial shot in the arm to our local real estate market and couldpotentially make 2008 real estate sales volume in Californiasurpass that of 2007. It will also be an opportune time to refi-nance a current jumbo first mortgage over $417,000 and asecond mortgage or HELOC into a new first loan at the com-ing lower conforming rates.

Another issue confronting borrowers mentioned above is

that some lenders are automatically reducing all loan-to-val-ues by 5% because of their belief that all of Los AngelesCounty is a declining value area. Some lenders will allow theappraiser to determine whether the property being appraisedis in a declining value area or not. In a purchase or refinance,imagine figuring your rate being based on 80% of theappraised value only to find out you have to factor in mort-gage insurance premium because the loan you have chosen ispriced as though it were 85% loan-to-value. Or, that you haveto put an additional 5% down to get the same rate youthought you had!

Something else to take note of is that Fannie Mae and Fred-die Mac, the purchasers of conforming loans in the secondarymarket from the lenders that fund them, has moved to risk-based pricing. That means tiered pricing based on borrowerscredit scores. The higher your credit score, the better the pric-ing. For example, should your middle credit score drop below680, you will have to pay an additional .75 of a point in feeover someone with a score of 680 or greater. On a $400,000loan, that amounts to $3,000 in points for the same rate. Nowmore than ever, make sure you manage your credit effectively.People arent aware that credit behavior that seems logical tothem can actually lower their FICO scores. That, coupled with


Stimulus Package

Spells Relief for California BY K EN R OBERTS B ECAUSE ENTRY LEVEL HOME PRICES IN THESOUTHBAY START AT CLOSE TO HALF A MILLION DOL-

LARS, a conforming loan limit of $417,000 falls farshort for the vast majority of home purchasers. As the creditcrunch lingers on, guidelines continue to tighten, making itmuch harder to qualify. Loan programs are being discontin-ued. The gap between rates charged for jumbo vs. conformingloan amounts has widened. In response, lenders either dontoffer second mortgages or lower the combined loan-to-values(LTV) to 80% or less for fixed-rate seconds and Home EquityLines of Credit (HELOC). jumbo purchases now require largerdown payments and refinances require lower loan-to-valuesto qualify. All this means decreased qualifying ratios andraised minimum credit standards.

Conforming loan guidelines, however, still allow 95100%loan-to-value first mortgages when combined with PrivateMortgage Insurance. There is still 100% financing availablewith a few lenders, although many have reduced maximumloan amounts in Los Angeles County by 5% due to declining

values. Conforming guidelines allow for much higher qualify-ing ratios than jumbo guidelines. Certainly rates are muchlower. As of this writing, conforming loans are 1% or morebelow jumbo rates.

FHA-insured loans currently go up to $362,790 here. Sincethey are not credit score- or FICO score-driven, they make iteasier to use non-traditional sources of credit. You dont haveto be a first-time buyer and there are no income or geographicrestrictions. They can go up to 97% LTV and can providedrowning sub-prime borrowers a possible life preserver in arefinance out of their rising payments. For primary residencebuyers, an FHA loan provides reasonable rates with a smalldown payment, (all of which can be gifts, grants or unsecuredloans), less-than-stellar credit, easier qualifying ratios and theability to take on a co-signer (non-occupant co-mortgagor) ortwo and blend the debts and income of all borrowers to helpqualify. It is a great loan to use to buy two to four units if youare going to owner-occupy one of the units.

To recap, FHA and conforming loans are cheaper, easier toget and require less money down. But for most people in theSouth Bay, unless you had a very large down payment in apurchase or a very large equity position in a refinance, youcouldnt take advantage of the benefits of an FHA or conform-ing loans. That is all about to change!

A R E A L E S T A T E P R O S P E R S P E C T I V E


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BUSINESSES OUTSOURCEOPERATIONS OVERSEAS FORMYRIAD REASONS. Gen-erally sent to Third World coun-tries, outsourcing can bolster

the bottom line, maximizeprofits and turbo-charge pro-ductivity. Our company wasno different. We were an ElSegundo-based custom pub-lisher of directories, maps andvisitor guides acting under con-tract for over 120 chambers of commerce clients spread over 18states and generating over $3 million inannual revenue. We moved all of our graphic design and pro-duction labor overseas to a well-trained and very hard work-ing labor force in Manila, the Philippines.

Before embarking on this venture, we conducted an in-depth analysis of our production operations to better under-stand our cost structures and determine if offshore outsourcingwas right for our company. Armed with this newfound infor-mation, we spent a considerable amount of time reorganizingboth the production group and the account managementgroup in an effort to better match people to their highest andbest use and to shorten the cycle. We trimmed a few days hereand there, streamlined the process significantly and still cameback to the nagging problem: we needed more bodies to pro-cess the sheer volume of ads. Yet with Los Angeles-basedlabor, there was no way the budget could support an expan-

sion of direct costs by even one more person. We had to find aless expensive labor force where we could add more peopleand still save money.

We first explored different regions in North America, ana-lyzed wages and availability of staff: Memphis, Las Vegas andCanada and a few other candidates didnt pencil out; the wagedifferential was just not enough. We then explored local compa-nies to outsource ad production, but the costs actually came inhigher than using our own labor. Subcontracting in North Amer-ica was a non-starter.

It became crystal clear that the massive difference in U.S. ver-sus foreign wages meant outsourcing overseas was a mission-critical objective. Finally, with all U.S.-based options exhaustedwe decided to follow the outsourcing bandwagon and explorepossibilities in India, Ireland and the Philippines.

Criteria for Choosing a CountrySince we published in American English, the risk of havingsomeone create an ad using British English might have beenproblematic.

This alone moved India and Ireland lower on the list. In thePhilippines, children learn American English in primary schoolwith excellent written language skills. So we chose to focus onthe Philippines as the primary candidate country.

Sourcing Candidate Companies:Consulates and the InternetAn Internet search came up with a number of companies, butwe decided to approach the Consul General of the Philippinesoffice in San Francisco for direction. It proved to be a veritabletreasure trove of information. We received a package withdescriptions of about 30 companies that had created outsourc-ing services in media. After looking through all the wide-ranginginformation and myriad offerings, nothing completely fit the bill.

To get more organized, we created a standardized Requestfor Proposal (RFP) and sent it to each prospective candidate,giving each 60 days to respond. In the RFP, we described ourcompany and defined as best we could exactly what we werelooking to accomplish: namely to move all advertising pro-

duction and ad traffic functions overseas with an eye towardsultimately moving all design and layout of the publicationsthere as well.

We spelled out the volume of ads, the number of people weemployed in the targeted positions, the number of people wethought were appropriate to get the job done and an expectedtimeframe to be fully implemented. Ten companies sent us pro-posals. Not a bad response, we thought, considering we werelooking for something unique.

In a large company, the entire process is delegated to a team.Small companies simply cant afford that, but all the above stepscould be delegated to someone, or the owner can tackle it witha little help. At this point in the process, senior managementneeds to be involved to fully understand the offerings and capa-bilities of each prospective outsourcing partner.

We interviewed each prospect and came up with a shortlist.One company stood apart from the others as being much furtheralong with outsourcing graphic production for magazine pub-lishers. After much discussion with each of the finalists on pric-ing, we determined the best pricing structure was simply to payfor FTEs (full-time equivalent staff) just as we did here for full-time positions. We paid a flat monthly rate per person, whichwas all inclusive of benefits, insurance, etc., and included thevendors markup.


C O L U M N I N S I D E RH U M A N R E S O U R C E S I N S I D E R

BY E D BURZMINSKI


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Comparing the cost to American labor, we stood to save 50%on salaries without factoring in savings in other overhead lineitems in the profit and loss. The ancillary savings became evi-dent only after we were knee-deep in the process, and were awelcome bonus.

We ran the pricing through a pro-forma P&L to estimate the

financial impact, taking educated guesses in some areas likeworkers compensation insurance, to prepare for discussionswith the other stakeholders and begin the process of gainingbuy-in from key stakeholders.

We discussed our findings with senior managers, line man-agers and other major staff people who were in the trencheson a daily basis. Framing the discussions from beginning withthe end in mind, we focused on providing excellent customerexperience and delivering publications on time and possiblyearlier. Its important to stay focused on the positive aspect andprovide solutions for those Americans who will ultimately losetheir jobs. That bridge is difficult to cross without havingthought through the options. The bottom line was simple: Wewere there to run a business and failing that, all of us would belooking for jobs.

Bringing in key managers in the discussions proved invalu-able. These decisions were simply too complex to be made fromthe top down. A representative from the overseas companycame to the office for several meetings and was a key player inthe process. Once everyone was able to get past the idea of lost

jobs and put their arms around how many solutions could berealized, the excitement to move forward snowballed.

Dealing with the Inevitable LayoffsThe fact that some people were going to lose their jobs had to be

dealt with head-on. That is the negative aspect of outsourcingwhich can be turned into a positive by thinking through a transi-tion plan, helping find jobs with other companies, and doingeverything possible to ensure a soft landing for everyone.

In our scenario, we offered a career opportunity to a juniorartist to become the International Production OutsourcingCoordinator. It would look good on her resume and poten-tially increase her marketability. For others, we put the wordout that these qualified people were entering the job marketand we wanted to see them have a soft landing with someother company.

The Outsourcing AgreementWe structured our agreement around creating an entire designand production department overseas from scratch to solely ser-vice our company and not simply layer us in to an existinginfrastructure. It was critical to have the production group avail-able during U.S. work hours, primarily driven by the need forthe ad traffic group to speak with advertisers by telephone. Withthe time difference, the Manila production group had to workthe graveyard shift. The agreement reflected a minimum num-ber of FTEs, to be recruited by the outsource company up to amaximum number, with additional FTEs to be negotiated as thevolume of work increased. The annual salaries were fully-bur-

dened with overhead and marked up for profit. We establisheda monthly, fixed price for each FTE payable bi-weekly to coin-cide with our payroll. There were no additional costs involvedother than our own travel for visits.

We needed to be aware of special labor considerations in thePhillipines, such as a guaranteed 13th month payroll that is

given to employees each year. In effect, its a guaranteed annualbonus of an extra months pay. Also, the concept of employees-at-will is, well, foreign. As part of the agreement negotiated,many of these issues became the responsibility of the overseasprovider to handle; we just paid one amount per FTE.

The production group had to follow an American schedulefor holidays. All human resource issues filtered through the out-source companys existing HR department and factored intotheir price.

A point of contention arose around management of staff andwho was to pay for it. An on-site manager was critical with thevolume of work and number of people. We initially factored thatperson in as an extra FTE negotiated as part of their own over-head assigned to the client. As things later evolved, it mademore sense for the cost of a dedicated manager to be generatedby us. As an extra precaution, we hired a Filipino-speaking pro-duction coordinator on our side to make sure communicationand management oversight was clear.

The vendor absorbed telephone communication costs. Wealso installed a toll-free number and used voice-over IP technol-ogy for phone calls. After a few bumps with the technology, thevoice communications were crystal clear.

Written Protocols and ProceduresWe spent a considerable amount of time working through the

procedures for handling the most common advertiser issues, theproduction workflow process, and a glossary of terminology weused at the company. Involving the line managers and seniormanagement helped create a well-rounded set of proceduresand protocols.

It was important to establish when to contact us regardingadvertiser issues and when we needed to intercede. It took aconsiderable amount of time to train the ad traffic staff to tempertheir zeal to shorten the ad approval process and work with peo-ple more to find solutions. There were some complaints aboutaggressiveness which needed to be addressed and fixed.

TrainingOne of the overseas staff spent four weeks in the U.S. at ourfacility working to understand our process and document theworkflow to train the growing team in Manila. It was awkwardhaving him interact with staff members destined to lose their

jobs, but he was very well-received and even became close withthe U.S. team. He built camaraderie with the group and wassympathetic to their situation. That was the critical, personalcomponent that helped the transition work well.

To ensure the transfer of institutional knowledge, we offeredsome of the production staffers retention bonuses to stay on





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Very few people I speak with in the South Bay business com-munity have much interest in it. This is especially true in the

real estate and financial communities most affected by Fedaction. I can understand why their corporate parents wanttheir personnel to focus on their jobs and let the skipper at thehelm of the Fed worry about storms on the horizon withoutthis kind of distraction. Yet the utter lack of transparency inthe process and the esoteric nature of economics have createdproblems of their own that have gone unchecked for decades.If most people really understood how this process works, thehistory behind it and what these enormous imbalances couldmean for the future of our nation, I believe they would be asconcerned as Cramer.

Rate cuts that create mounting trade deficits and otherforms of debt, both public and private, would have been con-sidered far too dangerous to consider as recently as 30 yearsago. However, the Fed has dodged the bullet so long thatmost people simply accept its aggressive policies with a shrug.Thats because most people dont know how to put thebroader implications of these moves in their proper context.Politicians generally dont bother with it to the point of sup-porting destructive policies if those appear to support theirshort-term agendas. Financial professionals delude themselvesinto believing all is good so long as they are making money.Hard truth about the state of the U.S. dollar is not consideredpolite conversation in financial circles. As a result, the major-



P U B L I S H E R S P E R S P E C T I V E

AS THE JANUARY STOCK MARKET RAN WILD, finan-cial guru Jim Mad Money Cramer went wild

himself, going as far as calling for an investigationof the Federal Reserve. His ranting accusations followed Chair-man Ben S. Bernankes unscheduled .75 percent cut in theFeds key lending rate, the biggest in over 20 years. When youlook at the statements that have accompanied every Fed ratecut, you could reach no conclusion other than the fact that theman has no idea what hes doing, Cramer told TheStreet.comin a January 22 video report. Then on January 30 at the Fedsscheduled meeting, it slashed the rate again by another half percent. Thats a cut of 125 basis points in just nine days.

The second cut occurred as the Commerce Departmentreported the gross domestic product, which is the broadestmeasure of U.S. economic growth, rose at an 0.6 percentannual rate during the fourth quarter of 2007, the weakestgrowth period since 2002 and an indicator that recessioncould be on the horizon if the downward trend continues.And as of this writing, Bernanke stands ready to cut again if necessary to keep the economy going.

Among global investors, uncertainty with fundamentals of the U.S. economy has reached its lowest point in years. Amer-icans tend to welcome rate cuts, believing they will save theday. Likewise, Wall Street always responds favorably to deci-sions to expand the money supply. But have you ever thoughtabout the broad implications of our money creation process?


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ity of people have no idea how risky these actions are forAmericas long-term prosperity.

The only difference between Cramer and many enlight-ened financial experts who really understand the dynamics of monetary policy is his unrestrained candor. To a degree, Iempathize with the call for restraint. This is a business wherereaction makes reality. For example, the Federal Deposit Insur-ance Corporation (FDIC) needs some latitude for secrecy toprevent bank runs when it arranges buyouts for failing institu-tions. But there are limits. Although off-the-cuff commentsfrom central bankers that tend to rock markets should beavoided, a lesson Bernanke learned the hard way, glossingover long-term monetary problems to fend off undesirablereactions allows deep-seated problems to fester and growuntil they reach the crisis stage. To be frank, the Americanpeople have a right to know the true state of the economy andwhat its relationship to the global marketplace truly repre-sents. But if the majority of the American people, including

most in the political establishment, dont know enough aboutmonetary policy to have an informed opinion about it, centralbankers with interests of their own are left to operate largelyunchecked. Shouldnt we be asking ourselves if this is appro-priate given the extraordinary magnitude of their decisions? If Bernanke really doesnt know what he is doing, as Crameralleges, he must be replaced. If he does, the intensely secre-tive organization he represents has much to explain, and thatincludes his predecessor Alan Greenspan.

Fed action this past decade created the bubbles that led tothe dot com crash and the real estate boom now deflatingbefore us. It prevented the post-911 recession from runningdeep and long when the economy was due for a major cor-rection. It allowed the Bush administration to engage in anexpensive war without having to implement austerity mea-sures at home. Financial bubbles driven by cheap moneytransformed appreciating homes into lifestyle enhancing ATMmachines. Misguided mortgage brokers and homebuyers betthe real estate market could rise forever. Is anyone really sur-prised they lost that bet? RealtyTrac.com reported over 2.2million foreclosure filings nationwide in 2007 and the blood-bath continues in 2008. To make matters worse, unscrupuloussecurities brokers packaged these time bombs into investmentpackages and sold them all over the world. This actually

caused the first run on a bank in Britain since the GreatDepression! If you examine these wild rides carefully to iden-tify their root causes, all roads lead to money bubbles createdby the Federal Reserve.

Bubbles, Bubbles and More Bubbles!Artificially stimulating the economy time and again withunwarranted expansions of the money supply simply createsenormous imbalances that led to the dangerous kinds of blowouts we have seen in the mortgage and credit marketssince mid-2007. Flooding the market with cheap money andgradually deflating the massive bubbles it creates plays fastand loose with the financial future of our nation. The post-911lending rate dropped as low as one percent to pull us out of recession quickly while setting the housing market on fire.The Fed was accused of dropping money from helicopters,but the financial opium felt so good that nobody cared.

Looking back further, Chinas industrial machine went into

high gear more than a decade ago driven by predatory mone-tary policies of its own, which continues to cause foreign debtto grow massive. Greenspans strategy of gradual rateincreases to keep the bubbles he was creating in check simplydidnt work because there was no mechanism to reduce themounting debt when the value of our main creditors currencyfollowed ours during the globalization boom. The dollar grewmuch too strong in relation to global currencies, but contin-ued to grow weaker in real terms as the debt accumulated.This has been going on for years and is now reaching a criti-cal mass.

All this was allowed to happen because of the collective igno-rance of the money creation process and ill-advised trust in acentral banking system that lacks appropriate checks and bal-ances. The Feds decision to aggressively lower lending rates dur-ing an economic boom, which is an extraordinary no-no fortraditional economists, was driven by astounding levels of foreigninvestment. It pushed the overall U.S. trade deficit from less than$100 billion in the early nineties to a recent peak of $758.5 bil-lion in 2006. The deficit dropped approximately six percent to$711 billion in 2007 due primarily to the plunging dollar encour-aging demand for more U.S. exports. The national debt rose from$5.7 trillion in 2001 to a staggering $9.2 trillion in 2008.



Flooding the market with cheap money and gradually deflating the massive bubbles it creates

plays fast and loose with the financial future of our nation.The post-911 lending rate dropped as low as one percent

to pull us out of recession quickly while setting the housing market on fire.

The Fed was accused of dropping money from helicopters,but the financial opium felt so good that nobody cared.



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This recent cut in the Feds key lendingrate transpired in the context of decliningforeign investment and a rapidly decliningU.S. dollar. Not only is this strategy flawed

because it cant deal with the debt ithas reached the point where there is noth-ing left to draw on to back this newexpansion of the money supply withoutcreating destructive inflation. In fact, manyexperts would argue the future of the dol-lar as the international reserve currency isin question and no other economic funda-mentals can sustain the currency for muchlonger. Thats why Cramer is freaking outabout what Bernanke is doing. Yet mostpeople simply dont get it.

Stimulus, Stimulus andMore Stimulus!On February 13, 2008, PresidentGeorge W. Bush signed into law a $168billion stimulus package including taxrebates to flush desperately needed cash

maintaining a favorable balance of tradeis no longer necessary. They now believecentral banks manipulating marketsthrough aggressive expansion of moneysupply is prudent economic policy if itstimulates short-term economic activity

regardless of the long-term debt it creates.

Depressions are too Depressingfor the Fed to ConsiderBoth Greenspan and Bernanke hold doc-torates in economics and both brag theyhave spent a great deal of time studyingthe Great Depression. The irony is thatGreenspans radical economic policiescontinued by Bernanke have brought thenation closer to this kind of economiccalamity than at any time since the latetwenties. But this time the economic fun-damentals are much further out of whackthen they ever were in the early 20thCentury. What worked for Greenspancant work the same way for Bernankebecause we are reaching the point wherethe mounting debt simply cant continueunchecked. Yet he appears to be engag-ing in exactly the same policy that cre-ated this bubble-building situation in thefirst place.

There is a critical difference betweenthe global economy of 1929 and 2008.

The imbalances that led to the GreatDepression resulted from unprece-dented debt in Europe following WorldWar I, unprecedented prosperity in theUnited States in the twenties drivingproduction dangerously out of syncwith domestic consumption, and hope-less attempts by economists and centralbankers at implementing monetary sta-bilization that called for a return to thepre-1914 gold standard economy.Financial calamities occurred eitherbecause of draconian action or frompolitically charged deviations fromsound economic principles.

Greenspan apparently thought hehad studied the process enough to avoidthe kinds of calamities created by hispredecessors and in many cases didexactly the opposite of what economistsof past generations would haveespoused. What he did was skillfullynavigate through treacherous situationsas the debt and risks continued to

back into the economy. But this movesurely to be welcomed by taxpayerscould fuel serious inflation that wouldcancel out most, if not all of the benefitsfor average Americans in the long run.In any case, it certainly makes mar-

velous sound bites that both parties cancapitalize upon in an election year.The key problem is that most Ameri-

cans put all their time and effort intoearning money and few pay much atten-tion to how money is made. They dontknow they are earning borrowed money,so when they continue to borrow and re-borrow previously borrowed money theyare not creating wealth, but speculatingon debt-laden assets growing unsustain-ably. At one time, governments allowed,and in some cases incited, severe finan-cial depressions because they understoodto do otherwise would lead to catastro-phe. The modern paradigm of economicsbelieves that government intervention tokeep the money supply in line with pro-duction and consumption in addition to

C O L U M N I N S I D E RP U B L I S H E R S P E R S P E C T I V E

PUBLISHERS PERSPECTIVEcontinued from page 13


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increase over time. We are now bettingour future on the idea that uncontrolleddebt can grow forever with occasionalcontrolled deflations of the bubbles thatwill cause economic pain but not thekind of blowouts experienced in the past

or more recently in developing nations.The Fed seems to believe we can main-tain prosperity at home via astutemaneuvers by central bankers enforcedby superpower political influence tomake sure the dollar remains the worldsreserve currency despite the lack of tan-gible economic fundamentals for this sit-uation to continue. Thats the currentparadigm in case you didnt know.

The history of the last four decades iseven more telling. In the early seventies,the Nixon administration ended theBretton Woods policy for post-war mon-etary stabilization, making it legal fortrade deficits to proliferate. The $500billion cost of the Vietnam War was thefinal nail in the coffin for the goldexchange standard in the United States.Since then, foreign investment has beenthe key backer of the U.S. dollar. Dur-ing the early years of de-industrializa-tion and acute inflation when Japan wasthe primary exporter to the UnitedStates, a gradual weakening of the dol-

lar served to flush much of the mount-ing trade deficit away, which wascalculated but considered manageableat the time. But the dollar got strong inthe eighties; and during the nineties,foreign debt began to mount uncontrol-lably. Also, to this day, approximately68 percent of the worlds oil is soldmostly on the New York and Londonexchanges in U.S. dollars. This isanother instrument, which former secre-tary of state Henry Kissinger dubbedpetrodollars, that the Fed uses to backthe money supply. Still, once again, thisprocess creates foreign debt and theworlds nations are pressing to make theEuro an alternative currency to buy oil.

When China became the primaryimporter to the United States, its centralbank pegged the value of the Yuan at alow point against the U.S. dollar. Thisprocess further eroded U.S. manufactur-ing because the Chinese workers werepaid 63 cents an hour or less depending

on the industry throughout the growthperiod. This further disrupted the balanceof trade to astronomical levels. To keepthis engine going, China began investingheavily in U.S. Treasury Bills, at one pointreaching $15 billion a month. Now the

debt is so extraordinary, I seriously ques-tion the feasibility of a soft landing. Weseem to be at a point where this unsus-tainable paradigm is drawing to a closeand I see no viable plan to replace it.

Sometimes an economy needs toslow down to prevent a hard crash.Instead, we close our eyes and hit thegas. The Federal Reserve has been pre-venting gross imbalances to right itself for so long that something big must giveat some point. Central bankers seem tobelieve all these things can be fixed witha money flush. We wont know what wecreated until the flow stops and all thebills we cant avoid come due. That iswhat people like Cramer are reallyafraid of and I share his concern.

David Whitehead is the publisher of Business Insider Magazine



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until the implementation was complete. To make the transitionsmoother, one person wrote a production process manualdescribing the operation as it was working at the time, defininga basis from which Manila could streamline and augment.

Several weeks after the Manila staff member returned tothe Philippines, we sent four people over the following fourmonths for one- to two-week stints to train in different areasand share their perspectives on the entire process. Two wereline managers and two were senior management, includingboth the CEO and the President. To maintain good manage-ment oversight we required a trip every quarter until the oper-ation began to run smoothly, and then every six months.

Parallel Processing and the LayoffsIt was important to keep the U.S.-based staff working in tan-dem with the Manila operation for a few months, just incase there was a serious problem and we had to pull back tothe U.S. Fortunately, the process went so smoothly that weabandoned the U.S. production department within threemonths. Some people had already found new jobs and oth-ers were let go with many thanks, much praise for their pro-fessionalism, a cash bonus for their dedication and letters of recommendation.

H U M A N R E S O U R C E S I N S I D E R


OUTSOURCINGcontinued from page 11

The Bottom LineOutsourcing ad production and ultimately the entire magazinedesign and layout to Manila proved extremely successful. Adapprovals came in on average within four weeks after the salerather than six, and the goal of reducing that to two weeksseemed to be in reach. We were finally able to add the number

of bodies needed to do the job right and streamline the entireprocess more than ever. While we didnt fully meet our goals,we did make significant improvements in shortening the operat-ing cycle. In several cases, we were finally delivering publica-tions in less than six months.

The cost savings were huge for a small company. Factoring incosts for workers comp and health insurance, the reduced needfor office supplies, telephone usage, and a big reduction in bothtoner and paper consumption for the laser printers, we shaved$300,000 of overhead from a $3 million company.

The process was very time-consuming and took a great dealof work to implement, but the end result was worth all the effort.We finally had a scalable, high-performance manufacturingoperation with a positive impact to the bottom line.

Ed Burzminski is a Business and Management Consultant helpingbusiness owners realize maximum performance and value fromtheir businesess. He was President and co-founder of Perfor-mance Publishing Group, Inc. in El Segundo, CA, which was sold in 2007. Ed can be reached at [email protected].


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AQUICK HISTORY LESSON: It wasnt Horace Greeleywho coined the famous saying Go West, youngman back in the mid 1800s. The actual author wasa journalist named John B.L. Soule. Regardless of the source, if either of those gentlemen were alive today and residing in theLos Angeles basin, chances are he would urge anyone withinear shot to Go South. That has been the trend at least in com-mercial real estate, where developers, CEOs and small businessentrepreneurs have begun to flock from traditional office bas-tions such as Downtown and the Westside to the South Bay.

Aside from its decidedly favorable coastal location andeasy access to freeways and light rail, the South Bay has sev-eral major points in its favor. First and foremost are cheaperrent and a larger supply of inventory, both of which continueto spur the so-called 405 migration. Additionally, the area

provides access to a variety of housing options that are nowspurring executives to migrate from locales such as BeverlyHills.

All this is fine and good when it comes to moving intopre-existing offices. Yet when it comes to new development,there are some serious challenges. The whole South Bay hasvirtually run out of land, said Brian Polkinghorne, Vice Pres-ident of CB Richard Ellis. To combat the problem, developershave had to become creative by reusing old spaces andenticing entrepreneurial types with the opportunity to buyinstead of lease.

As an example, Polkinghorne pointed to cities such as Car-son and Compton where major developers like the WatsonCompany and Carson Company have been demolishing exist-



BY BRIAN S IMON

B U I L D I N G T H E S O U T H B A Y E C O N O M Y


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ing manufacturing facilities and con-verting those to distribution buildings.

From campus-style business parks todestination resorts and office condos,

the sheer diversity of new product com-ing down the pike may be unprece-dented.

The following is a look at some of the areas most significant current andupcoming projects as well as the latestbuilding trends.

El Segundo: Where the Action IsHome to the thriving aerospace andhigh-tech industries, El Segundo isarguably the hub of the South Bayscommercial activity, with three large-scale projects already in progress andadditional plans on the drawing board.

Located on the long-fallow Rockwellsite on the east side of Sepulveda Boule-vard, Campus El Segundo representsone of the last chunks of substantialland left to build on in the South Bay.Originally approved in 2001 (when itwas called the El Segundo CorporateCampus), the proposed 2.2 millionsquare foot, mixed-use, lushly land-scaped office park has survived multiple

obstacles over the years, including liti-gation from a rival developer, a failedvoter referendum that intended to blockthe project, delays in the land purchase,and a decidedly soft office market. Butthe project is finally set to move forwardin the coming months.

Were looking to come out of theground the second quarter of 2008 witha 225,000-square foot, six-story build-ing on spec, announced Charlie Smith,Vice President of Campus developerThomas Properties Group, Inc. Wehope to be complete by the end of 2009 or early 2010.

Smith indicated that TPG would pre-fer a large tenant to assume the buildingand added that the company is also innegotiations with a major four-star, busi-ness-class hotel that would come with a70,000-square foot fitness facility andfull-service restaurant. The master planis to have eight buildings, Smith noted.

BUILDING THE SOUTH BAYcontinued from page 17



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20/40

Were out there meeting all the brokersand getting the tenants aware.

Though no one has signed yet, Smithconfirmed there has been a great deal of

interest from would-be tenants. Whatwere building is going to be special, hesaid. Given what Jim (Thomas, TPGChair) has built in the past (e.g. iconicdowntown skyscrapers like the GasCompany and U.S. Bank towers inDowntown Los Angeles, Plaza LasFuentes in Pasadena, Solana in Dallas,and Commerce Square in Philadelphia),people should be able to expect nothingshort of phenomenal. Smith added thatthe Campus offers more land and openspace than Santa Monicas celebratedWater Garden development as well aslower lease rates than the Westside. Itsgoing to be 10 years newer than any-thing similar out there, he said. TPGcould begin construction on a secondbuilding once a large tenant commits to the first, or if marketfeedback is positive.

Meanwhile on the north end of the same site, Torrance-based developer Mar Ventures has just completed a 14-acreoffice park aptly titled The Edge at Campus El Segundo . The215,000-square foot development will contain 20,000 squarefeet of retail, with the rest devoted to office space. The layout

for the project follows the prescribed design guidelines forCampus El Segundo, incorporating lushly landscaped walk-ways, distinctive architecture and open public areas. Mar Ven-tures President Allan Mackenzie likened The Edge to a number

of high-end business parks in areas such as Irvine or North SanDiego County. Those are very attractive to the emerging tech-nology companies, he said.

Mackenzie confirmed pending deals with Xerox FederalCredit Union, Dimerco (corporate headquarters), Betty Dixon,Formula PR, Scottrade, Kaya Sushi and Noahs Bagels. Addi-tional businesses are in negotiations and TPG itself (which sold

the 14 acres to Mar Ventures) has bought a two-story officecondo at The Edge to use as a marketing center. In all, abouthalf the project space is spoken for, Mackenzie estimated.

Mixed-use elements aside, perhaps the most innovativeaspect of the project is that tenants can actu-ally purchase the available spaces, whichrange in size from 1,500 to 20,000 squarefeet. Pricing for individual units vary, but quali-fied buyers can obtain up to 90 percentfinancing and can customize improvements intheir particular buildings to create potentiallyspectacular designs of their liking. Peoplewho own property tend to make a longer termcommitment to the city than those who lease,explained Mackenzie about the unusualarrangement. Were building something thatshopefully unique. While most buildings outthere are large with space for lease, we havesmall buildings with surface rather than struc-tured parking, and space for sale.

Mackenzie is also involved with the group(Rosecrans Sepulveda Partners) that owns thelandmark retail center Plaza El Segundo ,which debuted at the end of 2006 on Sepul-




Artists rendering of Campus El Segundo

Aerial view artists rendering of Terranea, currently under constructionon the old Marineland site in Rancho Palos Verdes.

The destination resort complex is scheduled to open in 2009.


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veda Boulevard just north of RosecransAvenue. Phase 1A has opened incre-mentally, with three distinct sectionsincorporating different architecturalthemes and retail types; in all totaling

just under 400,000 square feet of build-

ing space. The final 30,000 square feetwill be completed by the end of 2008.Notable Plaza tenants include big

box retailers (Best Buy, Borders), anupscale grocer (Whole Foods), hip fash-ion stores (Bebe, m. Frederic) andtrendy eateries (Salt Creek Grille, Mar-malade Caf).

Phase 1B, recently approved by the ElSegundo City Council, will add another70,000 square feet of what is anticipatedto be high-end retail at the southern tipof the site. Mackenzie said crews willbreak ground by early summer with acompletion date slated in late 2009.

Last But Not Lease:The Office Condo CrazeWhile average asking rents in the SouthBay remain lower than those on theWestside, Downtown or even nearbyPlaya Vista, they are still noticeably onthe rise. That fact coupled with a recentdecrease in mortgage rates could temptbusiness owners to consider purchasing a

new office rather than paying a landlord.Aside from The Edge, which targetsbuyers who require larger spaces, sev-eral smaller office complexes havecropped up in the area that hope to lurethose one and two-employee businessesthat just need a little office of their own.

In Hermosa Beach, where land isparticularly at a premium, at least a half dozen moderately sized (10,000 to20,000 square feet), general office usecondo projects are either planned orunder construction. Developer NickShaar tore down the 12,000 square footWarren Miller Building at 200 PierAvenue and will build in its stead an18,000 square foot, 53-unit complex. Aslightly smaller building but with largerindividual units will be completed thisspring on Second Street just west of Pacific Coast Highway at the site of aformer car dealership storage area.

Similar projects are planned just upcontinued on page 28


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T HE ALTERNATIVEMINIMUM TAX(AMT) is causing many people topay more in taxes by disallowing

various deductions they could otherwiseclaim. Originally devised to prevent thewealthy from abusing the system, the AMT

uses a complicated formula to determinewho is liable.The law passed in 1969 after a dis-

tressed Congress found evidence of 155wealthy Americans paying accountantsand tax attorneys to find loopholes toavoid paying taxes. Lawmakers respondedby passing legislation originally intendedto make these individuals pay their fair

may have to pay an AMT. This thresholdmay have been a reasonable limit a gener-ation ago when the law first came intobeing. However at the very least, it needsto be brought up-to-date with the currenteconomic situation and take future infla-

tion into consideration. If it is not indexedfor inflation, any dollar amount in the taxcode used to calculate a tax or a tax creditwill make that calculation even if theincome is below middle class standardsfor a particular region.

Permanently indexed for inflation, thedollar amount would rise by the annualinflation rate and would include onlywealth households by the current stan-dard for which it was originallyintended. Unfortunately, if the AMT waspermanently indexed for inflation, itwould cost the government an estimated$523 billion over 10 years. That is whyCongress has only been bold enough topass patches to reduce the number of taxpayers subject to the AMT in a givenyear. Fortunately for 2007 filers,Congress passed a patch that PresidentGeorge W. Bush signed into law in lateDecember to reduce the number of tax-payers subject to AMT from 20 millionto 4.2 million. But the question of the

share of tax. However, the law was poorlywritten and eventually twisted into some-thing that it was never intended to be an unfair financial burden to middle classworking families because it lacks perma-nent provisions to index for inflation.

Unfortunately, politicians from bothparties maintain this tax generates toomuch revenue to abolish. I assert legisla-tors should look for more equitable waysto make up for this revenue. Here are afew of the major issues that cause the mostproblems with the AMT:

Under the current format, a marriedcouple earning as little as $45,000 a year

A P ERSPECTIVE BY ANGELA L.H. S AYERS , C.P.A., M.B.A.


23/40


2008 tax season and beyond is wideopen and the debate continues.

Also pressing Congress is the call forunrelated tax rebates to stave off a loomingrecession, further impacting the federalbudget. This will make it even more diffi-

cult for legislators to come to agreementon a permanent solution for the AMT.To put the rapid growth of this contro-

versy into in perspective, approximately19,000 households paid the AMT in 1970,according to www.fidelity.com. In 2005,3.5 million did. The Washington Post reported in 2006 that the AMT will likelyapply to approximately 30 million taxpay-ers by 2010 if indexing for inflation is notimplemented.

Whenever income amounts are usedand geographic areas are not taken intoaccount, taxpayers in states with a highercost of living (i.e. California) are signifi-cantly more adversely affected than thosein states with a lower cost of living (i.e.Louisiana). In states with a higher cost of living, salaries tend to be higher. Thisdrivers more taxpayers into higher taxbrackets, though the individuals in ques-tion really have no more disposableincome than those in states with a lowercost of living and the same disposableincome.

Heres how the calculation works: Thethree elements that make a taxpayer subject to the AMT are getting married, havingchildren, and paying state income tax. Evenif we move beyond the obvious lack of family values that our politicians from bothparties keep talking about, this was not theinitial intent of the law. It is as if the taxcode unfairly punishes taxpayers for gettingmarried, having children, and paying theirstate income tax. Remember, the law wasdesigned to tax the wealthy more. I haveseen taxpayers with the same income lev-els, but with different filing statuses (singlevs. married filing joint) where the singletaxpayer is not subject to the AMT, yet itdoes apply to the married taxpayer.

Since this law the way it is practiced is so out of step with its initial intent,Congress has a moral duty to repeal theAMT or at least index properly for infla-tion. If the revenue it generates is so greatthat the government cannot do withoutthis tax, Congress has an obligation to find

a different solution by eliminating waste ingovernment spending.

Also, Congress could remove the loop-holes in the tax law allowing clever CPAsand tax attorneys to come up with legaltax strategies that the IRS deems abusive.

There are many factors that may determineif you are subject to the AMT. To find outhow the AMT could affect your own situa-tion, check with a qualified CPA or taxprofessional.

Angela L.H. Sayers, CPA, MBA has pro-vided professional tax and accountingadvice for over 12 years. Her full-serviceaccountancy corporation offers a widerange of services that provide value and tax savings, while being small enough to beflexible and responsive to clients needs.

You may contact Angela at 310-541-1611or by email at [email protected].

Business Insider Magazine Publisher David Whitehead contributed researchfor this column.


24/40


quence is the impact of the capital gainstax when a valuable business is sold.

The 2003 Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) reduced themaximum capital gains tax rate from20% to 15% for long-term capital gains

(investments owned for at least 12months). This reduction could representan exceptional tax-saving opportunity toinvestors and business owners looking tosell their holdings, given that the rate hasnot been below 20% in the past 60 years.

The five-percentage point reductionmade possible by the JGTRRA was not apermanent change, however. Originallyset to expire in December 2008, Presi-dent George Bush signed the Tax IncreasePrevention and Reconciliation Act of 2005 (TIPRA), thereby extending thelower rate until 2010.

Although the lower rate is not due toexpire for another three years, the recentpower shift in Congress has once againbrought the capital gains tax rate intoquestion. Not only does Congress havethe ability to extend the favorable rate, italso has the power to raise the rate beforeits planned expiration in 2010. When theDemocratic Party regained control of both the House and Senate in November2006, the red flag on capital gains was

raised once again.It would not be unusual for a Demo-cratic Congress to raise the capital gainstax rate. The bipartisan political battleregarding tax cuts has been long-standing.Proponents of a lower rate, usually Repub-licans, argue that reducing these rates bol-sters the economy by encouraginginvestment in promising enterprises andpromoting the sale and transfer of property.Supporters also believe that by reducingdouble taxation (investments first taxedas regular income that are taxed again atthe time of sale as capital gains), thoseconsidering new investment strategieswould have extra incentive to make addi-tional investments. Armed with these argu-ments, supporters believe the favorablerates should be made permanent. How-ever, opponents typically Democrats believe that the lower rates create tax shel-ters and benefits for the wealthy, resultingin revenue loss for the government. They

A S A BUSINESS OWNER, YOUMAY NOT BE INCLINEDtokeep yourself informed of

every change in the tax law. However,the current battle over the capital gainstax rate would certainly be one to watch.

A capital gains tax is a levy charged onthe profit realized on the sale of an asset.While the most common capital gains arerealized from the sale of stocks, bondsand precious metals, of far greater conse-


The Capital Gains Tax Rate:Is Change on the Horizon? BY BOB GOMEZ


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IN 2005, P RESIDENTGEORGE W. BUSH SIGNED THETAXINCREASEPREVENTION ANDRECONCILIATIONACT(TIPRA) into law, creating many challenges and newopportunities for taxpayers. In 2010, for example, the new taxstructure makes high-income earners eligible for Roth IRA con-versions as it lifts the $100,000 income ceiling. Also, marriedtaxpayers filing separately will be allowed to convert amountsin a Traditional IRA to a Roth IRA.

Usually, taxes from converted funds (earnings and any

deductible contributions) are due in the year of conversion.However, TIPRA allows the taxes on Roth conversions in2010 to be paid over the next two years (2011 and 2012).Owners must leave converted funds in the Roth IRA for fiveyears from the conversion date to withdraw the funds tax-free.Any distributions from a Roth conversion IRA before the five-year period will be subject to a 10% penalty. Additional con-tributions to a Roth IRA can only be made if the IRA holdersadjusted gross income (AGI) is under $110,000 if single, or$160,000 if married.

You may want to consider a Roth conversion if: You are many years from retirement and have the time to

earn back the amount of money paid for taxes when youconverted your IRA.

Your Traditional IRA has been opened for a short periodof time and the contributions have been mostly non-deductible. Your tax liability will likely be low at conver-sion because taxes are paid only on the growth of thefunds and on the deductible contributions.

You plan to leave the bulk of your IRA funds to heirs. Yourfunds will have a longer time to grow tax-free andrecover the taxes paid at conversion. Also, unlike a Tradi-tional IRA, the Roth has no requirement to withdraw

funds at age 70?, which gives you the potential to leave alarger tax-free account to children or grandchildren.

You anticipate your tax bracket will remain the same orwill be higher during retirement. The tax-free withdrawalsof a Roth will have more benefit.

You can pay the taxes from sources outside the IRA, soyou dont deplete the account further. If youre under age59, an additional penalty applies to funds withdrawn topay the taxes.

If you dont have a Traditional IRA, you might want to fundan account for the next five years in anticipation of convertingthe account in 2010. If your contributions are non-deductible,you will owe taxes only on any growth in the account. If youhave other IRAs, a pro-rata share of income in all your IRAswill be taxable.

Every situation is different, but some general rules of thumbexist for converting to a Roth IRA. Speak with your tax andfinancial advisors about strategies that may be appropriate foryour particular situation.

Bob Gomez is a Financial Advisor with Smith Barney located inRolling Hills Estates and may be reached at 310-544-3622. This

article is based, in whole or in part, on information provided by the Planning Services Department of Smith Barney.

Smith Barney is a division and service mark of Citigroup Global Markets Inc.Member SIPC.

Citigroup Inc., its affiliates, and its employees are not in the business of providingtax or legal advice. These materials and any tax-related statements are not intendedor written to be used, and cannot be used or relied upon, by any such taxpayer forthe purpose of avoiding tax penalties. Tax-related statements, if any, may have beenwritten in connection with the promotion or marketing of the transaction(s) ormatter(s) addressed by these materials, to the extent allowed by applicable law. Anysuch taxpayer should seek advice based on the taxpayers particular circumstancesfrom an independent tax advisor

BY BOB GOMEZ


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BY DAVID W HITEHEAD

T HROUGHOUT MY CAREER, IT HAS NEVER CEASEDTO AMAZE ME HOW COMPANIES STRUGGLE TOFIND THE RIGHT SALESPEOPLE. BUT PUTTING

TOGETHER THE RIGHT SALES STAFF IS ONLY PART OF THE

CHALLENGE. KNOWING THE RIGHT SALES PROCESS FORYOUR PRODUCT OR SERVICE IS JUST AS IMPORTANT.

For example, a company that sells vacuum cleaners needsa different kind of salesperson and sales process than a com-pany that sells computer networks for major corporations.Sure, many of the sales fundamentals, such as prospecting,follow-up and addressing objections, come in to play in everysales situation. But sales techniques appropriate for some situ-ations are certainly not appropriate in every situation.

The first thing any company needs to do is evaluate thelevel of complexity required to sell its product or service. If the product is as simple as a vacuum cleaner, it is a transac-tional sale. What the product does is well-known andstraightforward. Its either a quality product or it isnt. It workswell or it doesnt. The price is right or its not. Not much to it.Plus, anyone can use one. The pitch is short and the close isquick, or why bother? That means an aggressive salespersonhas a shot to sell you one, whether you need it or not. A morefinesse salesperson can make you believe you need it, at leastat the time of purchase.

If your product is this simple, you need attentive salespeoplewho can keep to a consistent pitch, think on their feet, treat

prospecting as a numbers game, and know how to hang inthere and close on the first sales call. The people who special-ize in this type of sale surely have their limitations. Yet, the suc-cessful ones are definitely sales pros and many companies sellproducts and services that capitalize on their discipline and tac-tical skills. For this type of sale, management primarily overseesthis process and keeps the engine going. Not surprisingly, theseare also the kind of salespeople most of us loathe to deal withwhen they get aggressive. Plus, the more transactional the sell,the more the sales process tends to work like this.

Now heres the problem. Many companies, including

major corporations, treat every sale like a transactional salewhen what they really need is consultative sales, where thesalesperson educates the prospect to make an informed deci-sion. Transactional salespeople are scared to do that becausethey believe they will lose the sale when they dont close onthe first or second call. So you want to make sure you hirepeople with enough intellectual depth to understand whyeducating prospects is important in certain sales situations.

Consultative sales entail getting on the prospects side of thetable, probing in depth to discover their needs, tailoring a solu-tion to fit those needs, and delivering for a competitive price.This is especially important when ongoing servicing is requiredand there are many variables to consider in tailoring a program.It is vital to your interests when the sale is complex enough thatyour salespeople are certain to encounter business you dontwant. Also, the knowledge base required for consultative sales-people to be effective is much greater, since the credibility theyestablish weighs in so heavily on the buying decision.

For this reason, it would behoove companies selling com-plex products and services to focus their efforts on thoughtfulcompanies looking for a vendor to partner with rather thanthe ones merely playing the deal-making game. First, thechances of satisfying price-focused clients disengaged fromthe value you offer are just about nil. Also, tossing deals on


Consultative sales entail

getting on the prospects side of the table,probing in depth to discover their needs,

tailoring a solution to fit those needs,and delivering for a competitive price.

This is especially important when ongoing servicing is required

and there are many variables to consider in tailoring a program.

S A L E S A N D M A R K E T I N G I N S I D E R


27/40

the table without properly defining needs is risky for both par-ties because chances are costs wont be evaluated properly forthe services that end up being performed.

Compare this to the transactional sale: Its not that big adeal if customers didnt really need that vacuum cleaner. If itsnot expensive and it picks up dirt, they can always use it. It isa huge deal when the customer makes a mistake on a largecapital expenditure essential to the companys operation thatrequires ongoing purchases and servicing.

Matching Up the Right Sellers with the Right BuyersFirst, we shouldnt hang the entire problem on the sales team.Lets examine how deal-hungry buyers create problems forthemselves. Many buyers treat complex purchases like trans-actional sales, leading to horrible decisions because they arethinking about getting the best deal when they should bethinking about the long-term implications of their decision. If your executive management is rewarding your buyers for cut-ting great deals stop it! Instead, reward them for findinggreat resources for a competitive price that help the company.Thats my definition of a great deal.

Bidding processes exasperate this phenomenon, especiallywhen committees and company politics get thrown in themix. I once worked for a newspaper that dumped a milliondollars into a new publishing system that had one notablehitch the buying group didnt catch until the thing was up andrunning. The software couldnt mix text with graphics. Con-sider this for a moment: They are a newspaper for Gods sakeand they bought a seven-figure computer system that couldntmix text with graphics. And this was in 1994! I would saysomeone forgot to ask an important question, but at the timeIm sure they thought they got a good deal. I think a goodconsultative salesperson would have been pulling their hairout trying to get that group under control. This turned intoexpensive debacle that was completely avoidable.

The lesson to be learned from this story is that when yourpurchase is complex and the stakes are high, both buyer andseller need to do their due diligence to determine if they reallywant the business, and most importantly, exactly what that busi-ness should be when its time to sign on the dotted line. Thiscan only be attained if they work together during the sales pro-cess. Traditional bidding processes destroy the ability of bothparties to accomplish this. If your company wants to shoparound, request proposals from a short list of vendors bestsuited to the job, communicate with them thoroughly so they

completely understand your needs and the value propositionyou are looking for, and dont force them to bid blind on coststructures the latter being the biggest recipe for disaster.Many companies just send out a request for proposal and areannoyed when vendors call to ask questions. Some act like its apoker game and they want to see their cards. Only a fool bidson a job based on sketchy information. Unfortunately, competi-tive sales environments tend to cultivate foolish behavior.

Savvy vendors dont just throw out deals. They ask ques-tions, even impertinent questions if those are relevant to thebid and affect the capacity to deliver profitably for themselves.They know when to push for the business and also when itsin everyones best interest to walk away from the table.Remember, business that might be good for the companydown the road might not be good for yours. Push the pointswhere your company is strong and make sure they tie in toyour prospects needs before you take the time to craft a pro-posal. Your first appointment should be strictly a fact-findingmission. Back off if you are dealing with someone who wantsto play vendors off each other. The winner of that bid is likelyto be the loser on the back end. Recognize that some people

are great dealmakers, some are great analyzers and others arestrong transactional closers.Buyers need analyzers to find the right program and deal-

makers to step in to negotiate when the best vender isthoughtfully identified. Keep the buying decision in the handsof a few qualified people who really understand what the pro-

ject is all about. Avoid letting these decisions get political,which often happens with a committee process.

Sellers need people who can do all three, dependingwhere they are in the sales process, with a strong focus onanalysis at the proposal stage. The ability to properly analyzeup front is the key difference between the transactional sales-person and the business development consultant.

In the transaction sale, its in the salespersons best interestto not let the prospect think too much about the details of theproduct or service. In a consultative sales situation, the salesprofessional often does the opposite because it is costly foreveryone if the deal isnt a fit for both parties. The key is torecognize what is best for a specific sales situation andrespect the need for professionalism from both buyer andseller. This is the best way to ensure what you close is really agood deal in the long run.

David Whitehead is the publisher of Business Insider Magazine

S A L E S A N D M A R K E T I N G I N S I D E R


Savvy vendors dont just throw out deals.They ask questions, even impertinent questions if those are relevant to the bid

and affect their capacity to deliver profitably for themselves.They know when to push for the business

and also when its in everyones best interest to walk away from the table.Remember, business that might be good for the company down the road might not be good for yours.


28/40

the street, one at another one-time car storage area (30th andPCH) and the other on what used to be a pumpkin patch lot(21st and PCH).

And in downtown, on Hermosa Avenue and 14th Street, a

developer has torn down a building that housed several fastfood operations and will build 32 office condos. City officialsview this as good news. In the Downtown, we see it as agood balance to get more daytime activity, said HermosaBeach Community Development Director Ken Robertson.Downtown is mostly known for its nighttime activity.

Robertson said the spaces, which have been advertised tosole proprietorships such as attorneys and architects, havebeen selling and can add a nice influx of property tax rev-enues into the Citys coffers. The units themselves start from aslittle as 350 square feet with pricing from $1,000 per squarefoot and up depending on location.

Candidates will more than likely livein the area and have either outgrowntheir home office or are looking for own-ership opportunities, said Robertson of the potential buyers.

That said he issued a caveat. Moresites could be available, but the questionis will this saturate the market for thistype of product. I think the jury is stillout. It could be a good thing but itdepends if they are sold and the rightkind of owners occupy them.

In neighboring Manhattan Beach, the

first office condo project approved in thatcommunitys downtown is set for comple-tion early next year at the former GoodStuff restaurant site on Highland Avenue and 13th Street. Thetwo-story, 15,000 square foot, general office building will con-tain small units of 300 square feet upstairs and pedestrian-serv-ing businesses on the ground level all for sale. It wasimportant we could maintain that type of activity (e.g. retail, realestate, jewelry store), so we restricted the use for the first floor,said Manhattan Beach Director of Community DevelopmentRichard Thompson.

Meanwhile, the Manhattan Beach City Council recentlyapproved plans to construct a medical office building withsome ground floor retail at 1000 N. Sepulveda (where Ver-sailles restaurant is still located). The developer has yet to pullpermits, but Thompson sees a certain momentum, especiallygiven Manhattan Beachs health and fitness-oriented demo-graphic. It seems to be the trend in this area, for both medi-cal office and general office use for people who live in thecommunity, whether they are doctors or other professionals,he said. They dont want to work out of their homes.

Another multi-use medical and professional office projectwith retail is earmarked for a 23-acre vacant site on the southside of Lomita Boulevard strategically close to Torrance

Memorial Hospital. Owned by New York-based RockefellerGroup Development Corporation, marketed by the KlabinCompany and now under environmental review, the $100million-plus Rockefeller Center will feature medical and pro-fessional offices buildings and office condos for sale.

In the middle of the spectrum, Pacsan Management Corpo-

ration will break ground mid-year on a two-story, 88,000square foot multi-use business park, the largest of its kind in ElSegundo ever west of Sepulveda. When completed, theSegundo Business Park (at the former International Rectifier siteon Kansas Street off of Grand Avenue) will feature 3540spaces and will cater to businesses in the three to 20-employeerange. Units will be split between traditional office elementsand more eclectic space. Pacsan President Lyle Maul describesthe project as the non-corporate version of Campus ElSegundo, targeting area residents and small business ownerslooking to lease or purchase their own units. We havedesigned all the space so that the individual units purchased

by buyers stand-out as individual unitsto show pride of ownership and to makeit possible to have signage on your ownsection of the building above your pri-vate exterior entrance, said Maul. Thiswill be a brand-new, custom-designedcampus setting, destination-style facility.Itll have all the power, parking andamenities such as a little restaurant,showers, lockers, bicycle storage, and of course, pride of ownership. In contrastto the numerous projects in the SouthBay selling 300- to 600-square foot

offices, were catering to the 1,000- to5,000-square foot buyer.The project is the first of what could

spur a redevelopment renaissance for El Segundos mixed-usecommercial/residential Smoky Hollow district (the area span-ning south of Grand between Sepulveda and Downtown) that isbeing targeted for eventual revitalization by the City. Our parkis meant to be a prototypical look for what could happen in thefuture in that area with eclectic office space, warehouse spaceand adequate parking in a green environment responding to theneeds of the small entrepreneurial business owners, said Maul.

So far, Maul has received verbal commitments to fillroughly one-third of the projected spaces. The tentative tenantlist includes financial and medical (a physical therapist, gen-eral practitioner and dentist have reserved 10,000 square feetalone) professionals. The lands MM1 zoning designation alsoallows for such diverse uses as retail, research and develop-ment and light warehouse.

A retail/office condo project has also been discussed forDowntown El Segundo at a four-lot site on Main Street andFranklin Avenue once occupied by the outdoor patio of a localpizzeria and a parking area. The ground floor would be dividedinto as many as three separate offices and/or retail businesseswith smaller (275 square foot and up) units for sale upstairs.




Terranea will be located on an exquisite bluff with

expansive ocean and coastal views.It offers a rare opportunity

to create a world-classoceanfront destination resort

in the Los Angeles area. Robert J.

business insider magazine - volume 3 - issue 3 - 1st issue 2008

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