Family Business Radio, hosted by Pat Romboletti and Meredith Moore, had a fascinating discussion on April 1st with Dan Merkel, of Southern States Insurance, Inc., and Josh Hirsh, Managing Director of Studley, about two essential subjects for a family-owned businesses: risk management and property leasing.
Josh shared his take on the economic realities found in today’s commercial real estate, in general and specifically for Atlanta. He pointed out that now is a very good time to be a tenant due to high vacancy rates. As a family-owned business, you should be evaluating your real estate costs—and consider renegotiating any leases. While it isn’t a free-for-all market we’re currently in, you can secure upfront concessions with long-term, flexible leases. He further pointed out that warehouse space isn’t quite as dramatically down as office space (apparently the warehouse developers weren’t as exuberant as the office space developers) and that a lease-to-buy strategy could be a viable option.
From a risk management perspective, Dan discussed the impact of the current economy on insurance. In terms of workers comp, building, equipment and other liabilities, few businesses have the same footprint as they did in, say, 2004 or 2005. With that downsizing, your insurance cost should have notched down, too. Renewal interviews with your trusted advisor would allow you the opportunity to address those changes.
Dan went on to liken reviewing your insurance to doing your taxes: boring, but required. His best advice is to take inventory of your insurance needs once a year, just like you do with your taxes. The risk of doing otherwise is too great. For instance, the two most likely negative events for a business in Atlanta is either a large fire or a tornado. You have to ask yourself—if something like that happens, do I have the coverage to rebuild? This is exceptionally critical for a family-owned business since virtually all of your wealth is tied up in your business and your real estate. Simply put, adequate insurance levels protect your family business so that you have a business to pass on to the next generation.
Josh articulated the role of a real estate professional working on your behalf. Real estate brokers can be so much more than the guy who finds space for you. A tenant representative can create a competitive environment that will work in your favor as the tenant-business owner. They can help you understand the different business models of landlords and work with the one most favorable to your cause. They can help you understand the nuances of the lease and can structure it in your best interest.
Insurance and real estate professionals can be important members of the trusted advisor team for family businesses. Josh’s view carries the weight of common sense, “I can move the ball along to a point, but I want to stop where my expertise stops.” From there, he relies on other professionals who can expertly address insurance, tax, and law matters. Dan concurred—“Create a stable of resources,” he said.
Be sure to listen to the full interview available as a download. These two experts will get you excited about the possibilities out there to capitalize on today’s financial climate while reducing risk.