And while Instagram has recovered somewhat since they issued an apology and cleared up the confusion surrounding photo rights, the long-term impact to Facebook, who acquired Instagram three months earlier, may be even greater. Facebook’s stock dropped approximately 3% after the Instagram faux pas.

Read my full post on Instagram’s missteps

As Americans celebrate the holidays with family and friends, they cannot help but ponder over the economic uncertainty facing them. The fiscal cliff is an issue that has been on everyone’s mind, impacting professional firms and business owners and in nearly every industry.  The fiscal cliff illustrates the financial uncertainty for almost any business with a connection to government funding, yet there is an insurance solution for these business owners that will allow them to lessen their losses and enjoy the holiday seasons with more financial certainty. This solution is reallocating funds into their own captive insurance policy.

It is still too soon to predict exactly which businesses will suffer the greatest impact, and to what extent they will face broad economic turmoil. However, the leading sectors exposed to the fiscal cliff are medical, defense, and financial. In some industries, the reduction in government funding will precipitate the loss of employees who may be critical to their infrastructure.

“Businesses still have time to ease these losses by funding (in 2012) insurance premiums into their own captive insurance company,” says Brad Barros, Managing Director and co-founder of Attainium Capital Development Advisors, LLC (Attainium).   “Premiums, that may be tax deductible, could be used to build large reserves and surplus to offset losses generated by the fiscal cliff.”

Additionally, companies that are able to reallocate significant funds into their own captive insurance company may not only better survive the fiscal cliff, but may actually profit from it, as they acquire market share from their less-prepared competitors.  From an economic standpoint, the kitchen table may become smaller, but shareholders and employees of businesses with foresight will have more of the pie for themselves and be able to enjoy the holiday season.

To read more about the Fiscal Cliff, read Brad’s recent commentary in Business Insider:

You can read more about the award and our ongoing involvement with the B+ Foundation in this morning’s press release.

Superstorm Sandy Reveals Risks in Public Transit

By Brad Barros

When it comes to extreme weather, one thing is certain; you can expect delays and cancellations on all forms of public transportation. Recently, businesses in New York learned just how expensive those delays and cancellations can actually be.

When super storm Sandy finally reached the northeast, her devastating effects caused subway closures, bus delays and flight cancellations. New York area businesses have been forced to contend with a staggering loss of work due to the employees that were unable to commute to the office. Interestingly, businesses that were not directly affected by the weather (no flood or windstorm damage) are suffering from the same dysfunctional loss of employees as businesses who were in the storm’s direct line of fire.

While New Yorkers pull together to recover from the storm, competing businesses located around the world are not slowing down. The financial service industry, including brokerage firms and wire houses that are members of the trade in global markets are suddenly at a disadvantage.

Knight and Company recently asked clients to send their trades elsewhere because of the storm and its impact on their capabilities to perform. Other firms simply do not have available staff members to conduct trading for clients, or even to manage their own positions.

For example, how will a global commodities broker contend with this level of dysfunction at a time when it has millions of dollars positioned in markets that require ongoing scrutiny from key employees who simply cannot get to work?

A less known but viable strategy for these types of companies to contend with unexpected losses, such as the inability of key employees to get to work for several days because of extreme weather, would be to establish a reserve pool or insurance company; thereby holding reserves and surpluses for the potential “rainy day” that may occur. The advantage in doing so is that these businesses may be able to use pretax dollars to build such a pool. Thus, allowing businesses to have two or three times as much money set aside for business risks. This includes what would otherwise be uninsured weather-related exposures, as compared with their competitors who are using retained earnings or shareholders’ after-tax dollars.

For years, the Federal government has supported captive insurance and other risk mitigation approaches to contend with natural disasters and similar business risks normally born by shareholder savings. The businesses that fail to examine a more efficient way to protect against natural disasters will likely suffer consequences of future calamities.

By Brad Barros

Managing Director, Attainium Capital Development Advisors, LLC

By Brad Barros

Managing Director, Attainium Capital Development Advisors, LLC

Regardless of which political philosophy one espouses, Americans will endure the legislative initiative derived, in part, from promises made to constituents over the past 12 months.

Legislative and regulatory changes at hand will affect some industries more than others. Healthcare, particularly health insurance and employee benefits costs, represent a significant and growing expense to small and mid sized businesses.

Consumer Price Index & Medical Care Inflation

According to the Consumer Price Index (CPI), Medical Care Inflation Rates will be approximately 4% over the next year . While ebbing at just over 2% in 2009, the medical cost inflation exposure for consumers has now almost doubled.

While consumers continue to see their medical costs increase at a pace dwarfing that of their income, the real losers in this political debate are small business owners who employ over 50 workers. This segment of the American business population has seen its health care premium costs increase by over 123% over the last decade compared with the overall inflation rate at 28% during the same period.
A Strategy for Small Business and Rising Health Care Cost

What does all this mean to business owners? How can small business protect their business and employees from rising costs?

Many successful privately owned businesses in the United States can no longer contend with the ever-increasing liability for medical costs. Furthermore, in order to manage health care costs, these businesses are often forced to reduce their workforce, cut payrolls, and even change the very nature of their employee base. Examples include reallocating workers from full-time to part-time, hiring contractors overseas, etc. Uninsured employees without adequate healthcare coverage face potential economic devastation and unpaid bills are passed on to consumers and taxpayers.

A Silver Lining

There is a silver lining for successful small businesses with over 100 employees. Congress allows small businesses to create their own insurance companies, effectively transferring the liability of certain types of risks, including the exposure to medical inflation costs, to their own insurance companies. In this model, a business may shift liabilities off of its balance sheet, build surplus and reserves on a potentially tax advantaged basis during good times, and have the funds available in tough economic times to help cover future increased medical costs. And, if costs are lower than actuarially anticipated, a business may retain profits in its own insurance company in a manner that is exempt from the business’ creditors.

While business owners are increasingly becoming aware of this valuable planning tool, surprisingly few of them are aware that these insurance companies may be used to fund inflation costs and related accident and health stabilization reserves. According to one industry expert, a long-duration guaranteed renewable accident and health policy issued by a business’ own insurance company may allow that business to build significant reserves over the years.

The design, creation and ongoing management of a small or mid sized insurance company requires business owner to work with skilled professionals in this field. Fees for hiring an experienced consulting firm to properly establish and manage a small insurance company vary. However, the financial benefits to the small businesses electing to implement their own insurance companies may far outweigh the costs. The value proposition of a privately owned insurance company may yield benefits five to ten times that of its net costs.

A Choice

Currently, business owners have a choice. They can choose to absorb self-insured losses such as medical inflation costs, as those costs occur. Alternatively, they may qualify to benefit from an opportunity allowing them pay premiums into their own insurance company to cover future medical cost increases. Businesses that have the cash flow and foresight to benefit from this ability will likely be far better positioned than their competitors to manage increasing healthcare costs, regardless of future legislative changes.

-Brad Barros

Copyright 2 November, 2012, Bradley Barros Attainium Capital Development Advisors, LLC

Yet, even the best minds have a way of getting it wrong.

For example, in 2005 the NFIP came up $20 billion dollars short in its calculations.  To be fair, storms like Katrina are rare.  Conversely, “50” or “100 year storms” do seam to arrive at least once every 50 or 100 years…  And funding or building reserves for such calamities is a bit easier when those doing the calculating know that, historically speaking, Uncle Sam will print more money to pay for the problem if need be.

Apparently, the bright idea of “borrowing” money that would never be returned eventually motivated FEMA to push for additional funds. In the case of the NFIP, congress pushed for issuing an additional $18.5 billion from the U.S. Treasury to pay off the damage.

Politics (and economic common sense) aside, unlike the Federal government, businesses cannot simply print currency and/or borrow from their favorite lender (let alone the national treasury) when unpredicted economic catastrophes occur.  Any business professional knows that banks today are resistant to lend money to businesses in good economic standing.  Borrowing large sums in an economic crisis is, for the most part, an impossibility.

It is rare indeed when a business can survive decades without facing a series of unanticipated challenges.  Yet, entrepreneurs know that they need to keep money in the game, so to speak, in order to stay in the game.  In today’s economy, traditional wealth management leaves little room for parking funds for rainy days or corporate hurricanes.

The solution is for businesses to build working capital while maintaining adequate liquidity to protect against the unforeseen.  To achieve both results simultaneously isn’t impossible, but it does require a combination of substantial skills, experience, and knowledge in areas of risk and wealth finance that are almost as rare as the proverbial “100 year storm”.

Most financial advisors (i.e. financial planners, tax lawyers, accountants, etc) are trained to build and protect wealth using traditional methods of asset allocation.  Similarly, the actuaries who developed loss projections for FEMA and the NFIP relied on traditional thinking in 2005… as did General Motors, AIG, and Bank of America in the economic storm of 2008.

Unfortunately, there is no potential for a taxpayer-funded bailout for small to mid sized companies.   In 2012, limiting one’s future to traditional planning is as dangerous as presuming that a “100 year storm” won’t happen again.  As former heavyweight champion Mike Tyson once noted, “Everyone has a plan… ’till they get punched in the mouth”.

Copyright Bradley A. Barros, 2112

Brad Barros is a co-founder of Attainium Capital Development Advisors™, LLC – a risk finance and wealth management firm whose unique world-class solutions include AttainiumIRR™, affording high and ultra-high net worth individuals the ability to Identify, Recover and Redeploy significant amounts of wealth that would otherwise be lost.   

Only a few short years ago, businesses across America were booming.  Economic indicators pointed toward an upward trajectory. With increased cash flow businesses invested capital, extended credit lines, and increased dividend yields.

Then, along came 2008… and the world changed.

Few if any of Wall Street’s brightest minds forecasted the impending economic storm.  Shareholders of some of the worlds largest financial institutions, including AIG and Bank of America, experienced devastating losses from which they may never recover.  Not surprisingly, for those investment and insurance companies that weathered the storm their remaining executives were not punished for their aggressive behavior at the expense of fellow stakeholders, rather, they were rewarded by the continuation of bonuses the retention of their jobs.

The recent Supreme Court ruling heralds another previously unanticipated and uninsured event; a new level of tax that has nowhere to go but up.

Regardless of one’s position on the Patient Protection and Affordable Care Act (ACA), as for now it is the law of the land. Regulations will continue to be issued, and various government agencies, notably those of Labor, Treasury and Health and Human Services will continue to grow in size.

Regardless of the benefits or merits of the ACA, businesses with over 50 employees now face an unanticipated expense that they may not be able pass onto consumers.

For over a decade it has been my position that since entrepreneurs can’t consistently predict future adverse events, our only rational response is to find ways to reduce our exposure and vulnerability.

Entrepreneurs need to plan, and investors need to have a sound basis on which they make their projections.  Despite the obvious need for predictability, we live in a time where politicians of either party can, with the stroke of a pen, create a new tax policy, altering the profitability, and at times, very survival of entire industries.

Advanced thinking about risk management is lacking in America.  Too many executives are rewarded for generating short-term corporate profits at the expense of long-term sustainable growth.  This outdated model of risk and reward is unacceptable. Hoping to fund unforeseen business risks through traditional means —traditional insurance, retained earnings, commercial loans or personal savings in privately owned organizations — isn’t enough to keep your company safe.  As long as businesses use a 20^th century approach to deal with a 21^st century problem, waking up to headlines about a “surprise ruling by the US Supreme Court” will have entrepreneurs wishing they planned smarter, so that they could sleep more soundly.

Copyright 2012, Bradley A. Barros

Brad Barros is a co-founder of Attainium Capital Development Advisors™, LLC – a risk finance and wealth management firm whose unique world-class solutions include AttainiumIRR™, affording high and ultra-high net worth individuals the ability to Identify, Recover and Redeploy significant levels of wealth that would otherwise be lost.