Finance – Managing Evergreen Clauses for Your Benefit

 

A big frustration for businesspeople in financing and leasing business and commercial equipment comes after they fail to read the fine print in contracts. Commonly found in financing and leasing contracts, evergreen clauses are designed to keep customers committed to an agreement beyond the original term.

To the rescue: LeaseQ, www.leaseq.com.

LeaseQ provided insider tips via a press release to business owners on coping with evergreen clauses. Based in Boston, LeaseQ is one of the leading providers of business and commercial equipment leasing and financing to small and large companies.

Evergreen clauses basically allow the lease term to automatically renew at the end of the lease, unless one party or the other provides notice to the other of their intent not to renew – usually no less than 30 days before the end of the current term.

Typical evergreen-clause wording

Evergreen clauses may be worded any number of ways, but they do share common characteristics, namely that they keep the contract active longer, and do provide a mechanism, however nebulous, for ending the agreement. They may also create serious hurdles to be overcome before the agreement can be nullified.

Evergreen clauses are designed to benefit the one providing the service, but can become a headache for the person receiving the service. This is due to the fact that most people simply do not review lease agreements months or years into the term. The clause sneaks up and is in effect before anyone is aware of it.

Evergreen clauses should be identified and agreed to only for very good reason, such as the locking in of a given price or rate. In most cases, they are best avoided, with simple refusal to sign unless the clause is removed. In many cases, lining it out and initialing where it was done will be enough to void the clause.

Try to negotiate elimination of the clause from the contract (see:  The 22 Dos and Don’ts for Successful Negotiations).

LeaseQ tips

If for whatever reason, it is impossible to avoid the evergreen clause, then evoking the clause is the single best method of protection.

Two of the most common include:

1. Sometime before: This agreement shall automatically renew for another one year term, unless either party provides notice to the other of its intent to terminate this agreement not less than 30 days before the end of the then current term.
2. Sometime within: This agreement shall automatically renew for another one-year term, unless either party provides notice to the other of its intent to terminate this agreement within 30 days of the end of the then current term.

Evoking the first example is the easiest, since it simply involves sending notice to the other party. The second is harder, since it involves creating a calendar item and sending notice of intent not to renew within the time frame.

For that matter, evergreen clauses are annoyingly prevalent everywhere — even in some antivirus provider agreements.

Good luck and read the fine print.

From the Coach’s Corner, here are additional finance tips:

• 4 Tips to Save on Your Professional Liability Insurance
• 8 Strategies When Sales Drop and Costs Cut into Your Profits
• Cutting Costs: 9 Best Practices to Avoid Making Reactionary Decisions
• For the Best Cash Flow, Manage Your Inventory Costs with 8 Tips
• Tips on Understanding the Mindset of IRS Auditors

“My problem lies in reconciling my gross habits with my net income.”

-Errol Flynn

 

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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

 

Compelling Insights for Career Opportunities in Finance

 

Increasingly, corporations worldwide are recruiting chief financial officers for their boardrooms. In addition to affecting current CFOs, it’s an encouraging bonus for financial professionals who aspire to become a CFO.

A 2012 Ernst & Young study shows there’s an unprecedented clamor for CFOs to serve on corporate boards. What are the catalysts? They include a challenging economy, government regulations, and the ever-increasing capabilities of CFOs.

“Regulatory pressure is driving a major increase in demand around the world for CFO experience on boards, says Ernst & Young’s EMEIA Markets Leader Jay Nibbe in a press release.

“In many countries, a CFO’s financial expertise is not only highly valued, but also mandatory,” he adds. “Additionally, as companies grapple with a volatile economy and the diverging growth trends of developed and rapid-growth markets, they increasingly want good insights and support for cost, risk, and cash flow management – three areas of focus that fall squarely within the CFO’s skill set.”

However, there are professional risks. A board position must be the right situation with the right timing (more on the risks later).

The report, “CFO and beyond: the possibilities and pathways outside finance,” includes responses from the following:

• 800 CFOs
• A 10-year review of the careers of CFOs at 347 companies with revenue in excess of $5 billion (US)
• Interviews with notable academics, CFOs, and governance experts

The study also indicates current and former CFOs are intrigued. They want to improve workings of boards of directors, develop innovative concepts, and create opportunities for boards to learn dissimilar cultures.

Key findings:

Rising demand for growing number of CFO competencies

• 79 percent of respondents agreed their financial expertise means they are in more demand than ever for board level roles.
• 14 percent of board members from the world’s largest companies studied were serving or former CFOs, up from 8 percent in 2002.
• The proportion of audit committee chairs who are serving or former, CFOs has doubled in the last decade (41 percent in 2012, up from 19 percent in 2002), perhaps reflecting the demand for increased transparency on company balance sheets.

“Although they are crucial, financial skills alone don’t necessarily make for a good board member,” adds Mr. Nibbe. “Many CFOs today have the financial skills as well as a unique combination of analytical, technical and strategic capabilities.”

That explains the trend.

Benefits of CFOs taking on non-executive roles

Seventy-five percent of respondents say a board position provides new perspectives, which enhances their skill sets.

“Experience in a different sector is seen by many CFOs as particularly valuable, with the opportunity to gain knowledge and transfer best-practice across industries,” Mr. Nibbe observes. “There can also be a ‘halo effect’ for those companies whose CFO is serving on the boards of large well-respected companies.”

Professional risks and distractions from core role can be a deterrent

• Despite the benefits, more than 40 percent think it is inappropriate for them to take on part-time roles.
• Board directors are often personally liable if it can be demonstrated that they have neglected their executive duties. For some, the demands of their core responsibilities are too great, and the risk of being overstretched is too significant. As corporate governance legislation becomes more stringent, the time required to be an effective non-executive director is increasing.

Note: Despite the appetite of CFOs to take on non-executive roles, there is a growing mismatch between the amount of time they feel able to dedicate to such a role and the recommendation by corporate governance best practice.

More than half of CFO respondents confirm that they can only spare five hours or less per week on a supplementary role, yet the minimum recommendation from the 2009 UK Walker Report (30 days per year) corresponds to at least that.

CFOs should adopt a long-term view and anticipate board composition changes

• Among the CFO respondents, those who identified themselves as long-term planners were significantly more likely to have taken on additional roles than more opportunistic CFOs.
• CFOs are also taking on board positions at a younger age than they were a decade ago. The increase in those CFOs from the companies studied who have taken on non-executive directorships is most marked among the younger generation – those aged between 40-49 years old.

Mr. Nibbe’s conclusions

“CFOs and future finance leaders interested in taking on a board level role should start early – competition for roles and expectations are rising so career planning is critical. They should do the research and choose the right role carefully and for the right time,” he asserts.

“They should also expect that, over the next decade, boards will increasingly value knowledge of rapid-growth markets, analytics and other dynamic technologies such as social media,” he adds.

“Finally, board recruiters are now looking for deep technical know-how, such as M&A and capital markets. Building deep experience of a particular domain will give candidates a good chance of being matched up with certain positions on certain boards.”

I agree. These are notable career insights from Ernst & Young (www.ey.com), a global leader in assurance, tax, transaction and advisory services. Globally, the firm employs 167,000 people.

Copies of the study can be requested at www.ey.com/cfoandbeyond.

From the Coach’s Corner, from this portal’s Finance category, here’s suggested reading:

• Finance: The Intrigue of Sovereign Wealth Funds
• To Finance Your Startup, How Bloggers Can Impact Your Quest for Venture Capital
• Cutting Costs: 9 Best Practices to Avoid Making Reactionary Decisions
• Tips on Understanding the Mindset of IRS Auditors

“Under capitalism, man exploits man. Under communism, it’s just the opposite.”

-John Kenneth Galbraith

 

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Author Terry Corbell has written innumerable online business-enhancement articles, and is also a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

 

Finance: The Intrigue of Sovereign Wealth Funds

 

Some eyebrows were raised during the last week of the 2012 presidential campaign when the second-oldest son of Republican presidential nominee Mitt Romney journeyed to Moscow. Matt Romney was there to sound out potential Russian investors for his firm, Excel Trust, a U.S. shopping center developer. 

Mr. Romney is a senior vice president for the real estate investment trust with $820 million in assets. It distributes 90 percent or more in dividends. That allows investors to avoid double taxation.  

His Russian trip was surprising for two reasons:  

Firstly, it was just before the epic event in his father’s career, and perhaps our debt-ridden nation.  

Secondly, his father had criticized the Obama Administration for a soft-yogurt stance with President Vladimir V. Putin’s government. You might recall the missile-defense controversy when Mr. Obama was caught on videotape telling Russia’s Dmitri A. Medvedev “…after my election, I have more flexibility.”

During a presidential debate, Mr. Romney asserted: “I’m not going to wear rose-colored glasses when it comes to Russia or Mr. Putin. And I’m certainly not going to say to him, ‘I’ll give you more flexibility after the election.’ ”

Despite the politics, there was a potential prize for the younger Romney’s company – a massive amount of money – part of Russia’s sovereign wealth fund (SWF). 

Origin of SWF concept 

Not to over simplify, an SWF is a government-owned investment fund that a country invests globally in a variety of ways. SWFs funds are often managed in nations’ banking systems or are invested by government agencies for a financial return. 

Governments generally generate SWFs out of budgetary surpluses. Budget surpluses? Hmm. That’s why a member of the Romney clan would go abroad for funds, and why the company that runs Heathrow Airport sold a 10 percent stake to the China Investment Corporation.

Now, even tiny Angola has entrepreneurs salivating – it created a $5 billion sovereign wealth fund in October 2012. 

In 1953, oil revenue prompted Kuwait to form its investment vehicle even before the country left the United Kingdom. The Kuwait Investment Authority is now believed to be worth at least $300 billion. 

So, the concept has been around for decades, but the term was coined in 2005 by Andrew Rozanov when he wrote “Who holds the wealth of nations?” in the Central Banking Journal. 

Before you ask, yes, several SWFs were invested on Wall Street in Citigroup, Merrill Lynch and Morgan Stanley amid the financial crash. 

Espionage potential 

But SWFs can be a mixed bag. For example, such foreign investments can cause national security concerns.  

Incredibly, a Chinese company, Sany Group Ltd. is suing President Obama in U.S. District Court because he issued an order preventing the firm from consummating a deal for four Oregon wind farms. Sany’s subsidiary, Ralls Corp., bought the wind farms this year.  

The problem: The wind farms are situated near a naval training site where unmanned drones are tested for the U.S. military.If the district court upholds the presidential order, China threatens to appeal all the way to the U.S. Supreme Court.Other concerns SWFs have an unpredictable potential to affect other asset markets. While the International Monetary Fund has established governance and transparency standards, there’s still a concern that SWFs aren’t as uniformly predictable as central banks. As a result of such politics, the feared U.S. Fiscal Cliff and the euro-zone crisis, China plans to invest $482 billion of its sovereign wealth in adjacent Asia countries.

“Our job is to support neighboring countries to develop industries that are complementary to China’s growth,” published reports quoted Mr. Lou Jiwei, chairman of the China Investment Corp. “We hope a stronger Chinese economy can benefit our neighbors.”

The younger Romney hasn’t been the only one on a hunting trip for funds. U.K. Prime Minister David Cameron toured the Middle East seeking sovereign wealth to fund job creation. Seeking funds for Britain’s wind farms and other sectors, he met with the managers of the region’s largest sovereign wealth funds.

With all the sovereign wealth worldwide, it’s ironic that the most-prosperous nation in the world is so debt-ridden, and 23 million Americans can’t find family wage jobs. Wouldn’t be nice if the U.S. would rack up budget surpluses instead of $16+ trillion in debt and greatly reduced the unemployment rate?

Now that’s an intriguing thought.

P.S. Here’s a hint: Perhaps you’ve caught on — if you have investment skills, these developments would appear to be career-enhancing opportunities.

From the Coach’s Corner, here are articles on financial matters:

• To Finance Your Startup, How Bloggers Can Impact Your Quest for Venture Capital
• Tips on Understanding the Mindset of IRS Auditors
• 4 Strategies if You Fear Missing Year-End Forecasts
• Even Ordinary Folks Need 10 Best Strategies for Estate Planning

“The Obama administration’s large and sustained increases in debt raise the specter of another financial crisis and large future tax increases, further chilling business investment and job creation.”

-Glenn Hubbard

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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

 

CES: Best Business Strategies to Get Tech Funding

 

Jan. 24, 2012

If you have a tech startup looking for funds, you already know the competition is intense. But there are strategies that will help you to get funded. Investors revealed their preferences for funding technology firms at the 2012 Consumer Electronics Show (CES) in Las Vegas.

On her blog, the chair of the CES venture capital panel, Joey Tamer, writes “each early stage fund planned to invest in a Series A for four or five new early stage companies during this year.”

When she’s not chairing venture panels, Ms. Tamer is an outstanding Los Angeles-based strategic consultant to technology and media (www.joeytamer.com).

“In the case of Jerusalem Venture Partners, Yoav Tzruya reported that this number represents no more than 1 percent of the 600 companies JVP reviews each year for its early stage fund,” says Ms. Tamer.

“Kevin Spain of Emergence Capital which has a focus on B2B applications, and Chris Petrovic of GameStop Digital which is a strategic investor/acquirer of game companies, as well as Habib Kairouz of Rho Capital agreed with the plan for four to five new deals this year,” she adds.

Improved environment

“We are in a boom period again, this time for the number of early stage companies in play in the market,” Ms. Tamer explains. “The continuing trend that allows for new technologies and applications to be built with many off-the-shelf tools, using world-wide technical expertise, for much less capital, has created many new companies competing for the funding resources available.

“The new trend of incubating companies in accelerators has added some seed capital to these concept-companies to get them through their initial product development,” she says. “But then these companies need to get some traction in the market, hopefully to significant revenue, before they can hope to move from seed capital to Series A.”

Optional strategies

Ms. Tamer indicates you have options to consider if you can’t get from seed to Series A or from Series A to Series B.

“Early stage companies not attracting that critical Series A or Series B funding should consider connecting strategically or through acquisition or merger with other similar-stage companies to create a stronger offering for funding,” she advises. “Aligning with other early companies that would enhance your market position or extend your product offerings or brand, you might attract that essential next stage of funding.”

She explains a developing trend.

“Kevin Spain added a new point, that he sees a strong emerging trend in B2B and enterprise applications using the new technologies that are mostly focused on the consumer market now,” she writes. “He advised companies to look for those B2B market opportunities for their current B2C products and applications. A doubling of your target markets, which rise and fall under different economic conditions, may present a strong offering to investors.”

She explains the motivation of two investors.

“Scott English from Hearst and Chris Petrovic of GameStop approach their investments as strategic additions to their portfolios, rather than as pure venture investments –even though each has a different priority for these investments,” she explains.

“The first point made was to conduct your due diligence about how strategic investors value their target companies,” Ms. Tamer says. “Hearst, for example, is a later stage investor focused on financial ROI to Hearst first, and strategic value to the portfolio second. GameStop, focused on early stage game companies, values its acquisition targets first as an operational addition to its portfolio plan (does the company add to GameStop’s infrastructure, product mix, learning about new markets, or strategy) before financial and ROI considerations.”

She explains some lessons:

1. Do your homework about your company’s “fit” with what an investment group might be seeking.
2. Talk with other companies in the investor’s portfolio.
3. Narrow down your list and your efforts to those investors that prefer your company’s stage, market sector, and your possible enhancement of their portfolio’s current companies.
4. Some strategic and corporate investors function very much like venture capitalists, and others have different priorities. So, after your due diligence, and as you enter discussions, read the deal’s restrictions and the detailed legal conditions before negotiating or accepting any investment.

Critical factors to help you win

“Norm Fogelsong of Institutional Venture Partners, a later-stage venture fund, insisted that your company’s vision must be big, very big, to attract the rounds of capital needed to become a major player,” she points out.

“The panelists agreed that they are very focused on execution, in particular execution on market penetration,” Ms. Tamer advises. “After you have been funded on your product’s unique value, it is time to turn your attention to your market, especially your customer acquisition and retention strategies, tactics and results.”

She provides another insight: “Yoav related that he looked for CEOs with deep market savvy, a founder who knows his or her product and its market realities, and has a strong go-to-market strategy.”

Ms. Tamer shares the insights of Sharon Wienbar of Scale Venture Partners, a later stage investor, who wants to minimize risk three ways:

• Proof of market responsiveness: Does your customer commit to your vision of your product’s value, price and use?
• A business model that prioritizes customer acquisition and retention: Do you have a plan that acquires each new customer quickly and for less and less cost of acquisition?
• Compelling metrics: are your projections for market penetration, growth and profitability backed up by proven metrics?

“So, amid the growing competition for capital we are seeing this year, particularly in the consumer market, investors’ focus seems to move quickly from unique technologies and applications to strong execution,” concludes Ms. Tamer. “Early stage companies need strategies to present compelling offerings to investors, and an increasing focus on market execution that leads to growing a big company and taking significant market share.”

Hope you enjoyed these insights. As usual, Ms. Tamer speaks and writes with authority.

(Note: I’m very familiar with Ms. Tamer’s expertise. She is a fellow member of Consultants West, www.consultantswest.com, a roundtable of veteran consultants in the Los Angeles area.)

From the Coach’s Corner, here are more of Ms. Tamer’s valuable insights:

How To Get More Opportunities As A Guest Speaker

How To Obtain The Most Profit From Speaking Opportunities

6 Values for Financial Protection

Options to Navigate This Marketplace Bedlam

What Should You Divulge When Asking for Investment Capital?

Downturn Survival

Leadership

Eight Strategies to Consider Before Starting A Tech Business

What No One Tells You about Raising Investment Capital

“If you can dream it, you can do it.”

-Walt Disney

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Columnist Terry Corbell is also a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complimentary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?

Why Accounting, Finance Can be Ideal Careers for Women

 

Women searching for a career or looking to make a change might be well-served if they consider accounting or finance. Why? Such a career affords a better balance between a career and personal life. That’s one of the conclusions from a 2011 study by a recruiting firm, Mergis.

“It is encouraging to the profession to note that both men and women are highly likely to recommend the profession to others,” says Patricia Dinunzio, the Mergis regional managing director. “But, that said, one of the greatest take-aways from this survey is that there is a clear need for accounting and finance mentorship programs.”

About 66 percent of surveyed men and women think success in accounting and finance is achieved by getting a mentor, but only 31 percent of men and 28 percent of women have ever had a mentor.

Eighty-six percent of men and 80 percent of women say they’d advise relatives to pursue such a career. Moreover, for young women, 88 percent of men and 86 percent of women say the career would be advantageous.

More Mergis results:

Best Practices for Encouraging Young Women to Enter the Field

• More than half of women (61 percent) and men (55 percent) believe there is a need for greater promotion of accounting and finance as a career choice for women.
• Half of the women and men surveyed claim greater mentoring programs would help.
• Thirty-five percent of women and 26 percent of men feel greater education programs about the field are necessary to pique interest.
• Greater availability of scholarship grants would also be an incentive to further promote the career, say 34 percent of women, while only 13 percent of men polled feel that to be the case.

Most Important Factors Leading to Personal Career Success in Finance and Accounting

• About half of both men (48 percent) and women (51 percent) rate accounting and finance skills and expertise as the top factor to success.
• Relationship building and personal networking came in second according to 41 percent of women and 39 percent of men.
• Forty-one percent of men believe that developing management skills is a priority as compared to only 22 percent of women who do.
• Approximately one-third of men (37 percent) and women (34 percent) claim gaining accounting and finance experience is critical to personal success.

Less Than Half (48 Percent) Of Women in Accounting & Finance Satisfied With Their Careers

• Women are less satisfied with the progression of their accounting and finance careers than men. Specifically, 59 percent of male workers in accounting and finance consider themselves to be satisfied, as opposed to 48 percent of women.
• Women in accounting and finance ranked being challenged (35 percent), compensation (27 percent) and flexibility (12 percent) as the most important factors to satisfaction in their career.
• On the other hand, men in accounting and finance ranked compensation (35 percent), being challenged (29 percent) and flexibility (12 percent) as the most important factors to satisfaction in their career.

See the complete survey results and methodology.

As a result of the economy, it’s true that many accounting firms are working overtime to make their numbers. But the survey caught my eye because I’ve long believed detail-minded professionals who are good with numbers and undecided about their careers should consider a career in accounting or finance. There will always be a demand for such skills in the public and private sectors.

From the Coach’s Corner, do you need a career change? Here are 10 steps for a career makeover. Are you job hunting? Tips to land your dream job with style, substance.

“Only accountants can save the world! – through peace, goodwill and reconciliations.”

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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry. 

 

12 Tips for Profits to Keep Your Business Dreams Alive

 

Most businesspeople agree the economy continues to be challenging. Signs of a lingering downturn are everywhere. Business activity is slow. Governments at all levels report low tax revenue and are restructuring, and not spending. Customers want you to cut prices.

With a high level of oversupply in many industries, high unemployment and reduced customer spending, many businesspeople face a highly competitive environment.

To keep your dream alive in this downturn, you must find ways to adapt and do it quickly. That means re-examining business plans, strengthening risk management initiatives, retaining top talent, and making internal changes and restructuring to increase efficiency and profitability – all while looking for new opportunities for growth.

How to improve your business position:

1. Be defensive. Protect your turf by taking the best possible care of your best customers. You can invigorate sales with customer retention strategies. Find out what they think of your company, and make necessary improvements. You might consider jettisoning high-maintenance customers. Upon careful review, you might find they’re not profitable for you. You don’t want to be in a position where you’re just moving money around.
2. Expand your customer base. By surveying your best customers, you’ll probably get some compliments. That’s a perfect opportunity to ask for referrals. Find low-cost ways of rewarding them for referring their associates, relatives and friends to you. Here are sales and networking strategies to build strong relationships.
3. Invest in your future. Keep your productive marketing going. Train your workers. Take advantage of innovations in technology. Consider the 11 strategies to keep your business floating above water.
4. Develop an employee-loyalty program. Make it a fun working environment. Even if you can’t give raises, learn how other businesses are successful in retaining their best employees.  Learn which employees are most-likely to quit. Be transparent with them. Explain your challenges and how they can help, especially in processes and with customers. Note the strategies if a valued employee wants a raise, and money’s tight.
5. Fine-tune your branding. Use the eight best practices in small business marketing. The key to remember – customers want value. Think 1930s for business success. Consumer attitudes are changing.
6. Give back to the community. Did you know that cause-related marketing can increase sales by double digits?
7. Review your pricing strategy. Determine how to get more return on your sales. There are eight simple strategies to give you pricing power.
8. Use best practices in managing your financials. If you’re struggling, here are the step-by-step solutions for a company turnaround.
9. Be creative in your receivables. If collections are a challenge, here’s how to ease debt-collection headaches.
10. If you’re small, make it work for you. Remember size doesn’t matter but image, professionalism count.
11. Do your best for the environment. Eco strategies work with customers. Here’s a checklist for branding, selling your biz as green.
12. Become an innovator. You must constantly evolve. Here’s how successful companies innovate. Once you are running on all cylinders, consider buying your competitors – providing, of course, you can manage them.

From the Coach’s Corner, if you’re really in a survival mode, here’s a six-part series with tips on “Surviving Economic & Industry Downturns” for your Downturn Survival.

“Nobody talks of entrepreneurship as survival, but that’s exactly what it is and what nurtures creative thinking.”

-Anita Roddick

 

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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

 

Tax Tips for Your 2011 Year-End Tax Planning

 

November 9, 2011

If you haven’t completed your year-end tax planning, you might want to consider it now.  Just in time, come 12 pointers from Grant Thornton’s Washington national tax office.

“It’s not too late to change what goes on your tax return when tax season rolls around,” says Justin Ransome, a Grant Thornton partner in a press statement. “Just a little bit of planning in November can often go a long way on April 15.”

The professional services firm acknowledges that tax burdens for everyone are as challenging as ever, as policymakers are trying to maximize tax revenue to balance budgets.

Grant Thornton is quick to remind you to see your tax advisor for your own situation, but offers 12 tips that fit most anyone’s circumstances.

For brevity here, Grant Thornton’s excerpted list includes:

1. Accelerate deductions and defer income. Why pay tax now when you can pay tomorrow? Deferring tax is a cornerstone of tax planning. Generally this means you want to accelerate deductions into the current year and defer income into next year. There are plenty of income items and expenses you may be able to control, and business owners and self-employed taxpayers often have the best opportunities.
2. Bunch itemized deductions. Many expenses can be deducted only if they exceed a certain percentage of your adjusted gross income (AGI).
3. Maximize “above-the-line” deductions. Above-the-line deductions are especially valuable because they reduce your AGI, and AGI is used to test whether you’re eligible for many tax benefits.
4. onsider charitable contributions carefully. Think about giving appreciated property to charity so you can deduct the full value without paying capital gains taxes. But don’t donate depreciated property.
5. Leverage retirement account tax savings. It’s not too late to maximize contributions to a retirement account. Traditional retirement accounts like 401(k)s and IRAs still offer some of the best tax savings in the tax code.
6. Roll over into a Roth account. “Roth” versions of traditional retirement accounts, such as 401(k)s and IRAs, also provide a great savings opportunity. You don’t get a tax break when you put money into a Roth account, but the money grows tax-free and is never taxed again if distributions are made properly.
7. Expense business investments. Business owners have been given a great opportunity to save on taxes while investing in their businesses this year. Legislation enacted in 2010 doubles a bonus depreciation tax benefit for property a business places in service before the end of the year.
8. Consider your salary as corporate employee-shareholder. If you own a corporation and work in the business, you need to think carefully about your salary structure.
9. Make up a tax shortfall with increased withholding. Don’t forget that taxes are due throughout the year. Check your withholding and estimated tax payments now while you have time to fix a problem.
10. Don’t forget to use annual gift tax exclusion. If you may have to pay estate taxes eventually, consider establishing a gifting program for your children and grandchildren to take advantage of the annual gift tax exclusion.
11. Watch out for the “kiddie tax.” The “kiddie tax,” which requires a portion of a child’s unearned income to be taxed at the parents’ marginal rate, has been expanded to apply to full-time students under the age of 24 whose earned income does not represent at least one-half of their support.
12. Perform an overall financial checkup. The end of the year is always a good time to assess your current financial situation and your plans for yourself and your business. You should think about cash flow, health care, retirement, investment and estate planning.

“Keep in mind that these tax tips are general tax advice and may not be applicable to your particular circumstances,” warns Mr. Ransome. “Make sure that you consult with your personal tax adviser before implementing any changes or additions to your tax planning strategy.”

That’s excellent advice, too. For more details, I strongly urge you to read Grant Thornton’s 2011 year-end tax guide. 

From the Coach’s Corner, here are more financial tips:

Budgeting Basics for a Micro Business

In Any Economy, What Drives Your Profit, Really?

Embezzlement – Tips to Protect Your Nonprofit or Company Assets

Accounting / Finance – Why and How to Determine Your Break-Even Point

6 Values for Financial Protection

“We don’t seem to be able to check crime, so why not legalize it and then tax it out of business?”
-Will Rogers

 

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Columnist Terry Corbell is also a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complimentary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?

 

Profit Drivers – How and Why to Partner with Your Employees

 

If you want maximum profit, consider partnering with your employees.

“Key employees – in fact, all employees – will be more valuable to a company if they understand what drives profit and improves cash flow for the business,” says leading financial consultant Roni Fischer.

Ms. Fischer explains typical obstacles to profit:

• A furniture retailer might have employees who believe every conceivable product should be stocked for easy sales, but workers don’t understand the need for diligent inventory management so cash isn’t tied up unnecessarily. 
• Because of the economic downturn, some sales people want to discount prices. They don’t understand the need to sell products at full price to preserve profit margins. 
• Sales persons might focus on prospecting for new customers rather than nurturing existing relationships. They don’t appreciate that retaining customer loyalty by providing added value to those who are already buying your products is much more cost effective than pursuing new customers. 

Ms. Fischer knows the greatest asset that any company has is its human capital.  

“The best way in which to engage and empower these employees is by sharing management’s vision, goals and sales targets with the company’s personnel,” she explains. “Employees in every department can impact the profitability and cash flow of the business. When staff members understand how their roles impact the bottom line – and are financially incented to achieve the company’s goals – they become key partners in the business.” 

She recommends key profit-making roles and contributions by departments: 

Marketing – Ensuring that marketing campaigns focus on “benefits” – how their products respond to a customer’s “pain” or “need” (rather than merely detailing the features of the product) – maximizes sales.

Sales – Focusing on products with the highest gross profit margins, rather than top line revenue dollars, increases profitability. Structuring commission schedules to reward more profitable sales redirects emphasis to those products and relationships that are most financially lucrative. Partnering sales with finance to collect outstanding accounts receivable balances – before sales commission checks are cut – escalates cash flow.

Operations / Manufacturing – Streamlining manufacturing and operational processes to eliminate waste and minimize defects conserves cash. Accurately planning production levels in response to marketing’s projections enhances the likelihood of having sufficient inventory to meet customer demand (thereby maximizing sales) and minimizes overproduction (which generates costly excess inventory). 

Finance – Collaboratively developing budgets that incorporate input from all company departments and tracking performance against these budgets provides a means of quantifying the company’s activities.  Translating these budgets into cash flow projections helps ensure adequate capital for payroll-related expenses, production, sales and administrative expenses, R&D, capital expenditures, etc. Evaluating credit worthiness of potential customers and determining when to offer payment terms minimizes the risk of non-collection of accounts receivable balances. 

Human Resources – Communicating management’s vision, goals and objectives provides the framework for training and empowering employees to optimize their personal contributions toward achieving these goals.  Incenting employees with three-tiered bonus compensation plans reflecting individual, group and overall company performance enables all employees to share in the company’s success. 

Management – Strategically guiding the business and empowering the employees to partner with Management in attaining the company goals capitalizes on the business’ human resource assets.  

“One tool that can be exceedingly effective in guiding, tracking and communicating the company’s performance is the flash report,” she points out. “This one-page document incorporates key performance indicators (KPIs), or critical success factors, that management has identified drive the company’s success. Typically these relate to sales, collections, cash balance, accounts receivable, loan balance, accounts payable and backlog.”  

How KPIs are best utilized 

“Updated daily by 9:00 a.m., with the KPIs compared against the monthly and year-to-date budget, the flash report should be shared with as many people in the company as possible so that all departments understand their roles and can assume a sense of ‘ownership’ in achieving the company’s goals,” Ms. Fischer explains. 

Ms. Fischer is president of RLF Associates, Inc. in the Los Angeles area. As a leading consultant for over 25 years, she provides expert financial and management solutions for firms ranging from start-up companies to multi-hundred million dollar corporations. 

See more of Ms. Fischer’s insights: Budgeting Basics for a Micro Business.

Her Web site: www.rlfassociates.com.

(Note: She is a fellow member of Consultants West, www.consultantswest.com, a roundtable of veteran consultants in the Los Angeles area.)

From the Coach’s Corner, here’s a related resource link: Accounting / Finance – Why and How to Determine Your Break-Even Point

“I never lost money by turning a profit.”
-Bernard Baruch

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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

 

Budgeting Basics for a Micro Business

 

For entrepreneurs, often the most difficult part of launching a business is preparing financial projections. It may not be the most enjoyable task, but budgeting is imperative for maximizing performance.

“Eight out of 10 companies fail in the first two years due to insufficient cash,” warns esteemed financial consultant Roni Fischer.

In addition, you’ll need to be on top of your financials in order to grow – whether you hope to obtain a bank loan, attract investors, invest in equipment, or hire employees.

“Companies need to develop both an annual operating budget and a cash plan,” says Ms. Fischer.

“The annual operating budget provides a roadmap for your operations for the next 12 months – including your projected sales to customers, your associated costs to produce these items, your marketing and customer services costs, as well as your overhead expenses,” she explains. “The difference between the revenue (sales to customers) and the costs is your projected income (or loss) for the year.

“Along with the annual operating budget, you’ll want to project your cash flow,” adds Ms. Fischer. “For early stage and emerging companies, cash flow is difficult to sustain as growth always requires cash. Therefore, it is imperative to know when you will be collecting receipts from your customers and when your bills need to be paid to ensure you have adequate cash to honor your payroll and vendor payment commitments.”

Ms. Fischer is president of RLF Associates, Inc. in the Los Angeles area. I’m very familiar with her work. As a leading consultant for over 25 years, she provides expert financial and management solutions for firms ranging from start-up companies to multi-hundred million dollar corporations.

Ms. Fischer offers the following guidance for preparing your monthly projections:

Key Elements for an Annual Operating Budget:

1. Prior Performance. If you have data from the prior year(s), this can be helpful in preparing your current year budget. 
2. Sales Projections. Be pragmatic about your forecast. Include how much you plan to sell and at what price. Anticipate the elasticity of customer demand vis-à-vis economic conditions and price points. 
3. Cost of Goods Sold. This includes materials and labor (your “direct” costs for producing the items), and your ”indirect” costs for manufacturing. 
4. Expenses. Include your sales and marketing expenses as well as your overhead costs – such as salaries, rent, utilities and supplies. 
5. Operating Income. Calculate sales, less cost of goods sold, less expenses to determine your operating income (or loss). 
6. Assumptions. Ensure that your assumptions are reasonable and achievable. Base your projections on your experience, instincts, market research and other available information.

Key Elements for a Cash Plan:

1. Beginning Cash Balance. Start with the cash you currently have in the bank. 
2. Cash Receipts. Estimate the cash you anticipate receiving from your customers; considering the payment terms you have offered to them. Keep in mind that although you may have “sales” in December, you may not collect the cash until January or February (or later). 
3. Cash Disbursements. Project the cash you will need to pay your expenses in a timely fashion. Consider every expense from payroll (and associated payroll taxes) to rent to other operating costs. 
4. Cash Surplus or Shortfall. Starting with your beginning cash balance, add your cash receipts, and subtract your cash disbursements. If the result is a “positive” number, you have a surplus. If the result is a “negative” number (less than zero), you have a shortfall, and will need to review your annual operating budget to determine which expenses you can reduce, which payments you can defer, or where you can obtain a loan to cover this shortfall. 
5. Financing. Determine if you have the required funds for the period in question. Hopefully, you will have a surplus. If not, consider other sources for obtaining money such as a bank line of credit, factoring your accounts receivable or obtaining a loan from friends or family members. Make sure you maintain a cash reserve for contingencies. 
6. Ending Cash Balance. Calculate your ending cash balance by starting with your beginning cash balance, adding your cash receipts and any financing, and subtracting your cash disbursements. The resulting amount will be the beginning cash balance for the next period.

You’ve no doubt heard the adage, “Cash is king.” So make certain you have ample reserves to operate your business.

Ms. Fischer’s Web site: www.rlfassociates.com.

(Note: She is a fellow member of Consultants West, www.consultantswest.com, a roundtable of veteran consultants in the Los Angeles area.)

From the Coach’s Corner, here are some related resource links:

• Primer for Best Practices in Preparing Financial Statements
• Accounting / Finance – Why and How to Determine Your Break-Even Point
• In Any Economy, What Drives Your Profit, Really?
• Embezzlement – Tips to Protect Your Nonprofit or Company Assets
• 6 Values for Financial Protection
• 11 Strategies to Keep your Small Business Floating above Water

“If you aren’t practicing and playing to be first, then maybe you shouldn’t be an entrepreneur.”

-Robert Kiyosaki

 

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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

 

Embezzlement – 21 Tips to Protect Your Nonprofit or Company Assets

 

Embezzlement is a widespread nightmare in business and the public sector. If you surf the Internet using the key word, embezzlement, you’ll find seemingly countless headlines.

Upper management commits 18 percent of fraud, according to the Association of Certified Fraud Examiners (ACFE) in 2010. ACFE also said accounting department employees commit 29 percent of fraud.

Not convinced embezzlement is rampant?

Consider these news stories:

• Sparks office manager sentenced in 750K embezzlement case  – The $750,000 embezzlement resulting in 60 Nevada construction workers being laid off.
• Auditor praises UW’s handling of embezzlement case – It was too late, but the University of Washington Medical Center was praised for its handling of a $250,000 employee embezzlement by the state Auditor’s Office.
• Va sheriff charged with embezzlement, bribery – In Virginia, the Middlesex County Sheriff was indicted on 25 felony counts on alleged embezzlement and other charges.
• Ex-DPS accountant pleads guilty to embezzlement – In Detroit Public schools, a former accountant pleaded guilty to embezzlement and a related charge.

Yes, embezzlement can happen anywhere to anybody. Management has to create an environment that will deter dishonesty. That’s a major responsibility of the board of directors and management.

Thorough background checks on new employees are necessary. In new-employee orientation, discuss your company’s financial principles. In a businesslike manner, emphasize that deceit, fraud or theft aren’t tolerated. When policies are explained well, good employees will respect proper internal financial controls.

After all, without internal controls it’s easy for an employee to hide checks that arrive from customers and stamp them with their own personal bank account numbers. And if invoices aren’t recorded, even salespeople can personally benefit by selling products on the black-market or Craigslist.

Actually, it doesn’t hurt for everyone to know financial procedures. As a business-performance consultant, I’ve seen this movie many times including embezzlement at a religious nonprofit, $200,000 in missing inventory at a retailer, and $250,000 in theft at a water utility.

In each case, the management solutions were financial and inventory controls, as well as training of all employees in ethics.

In the water utility situation, the budget became tight and management intended to hire me for PR crisis management to calm utility ratepayers. But I insisted on training the employees. I knew the priority was installing controls, and PR would have to come later. Fortunately, the training program resulted in improved morale, teamwork and communication. It greatly alleviated the PR crisis, so PR strategies were unnecessary.

Yes, fraud could have been prevented by alert co-workers. It doesn’t matter how much you trust employees, make certain no one finds it easy to commit embezzlement. In each of the above embezzlement examples, trusted employees were the culprits.

Yes, I know, it’s difficult in small companies because they can only afford a bookkeeper. But it’s possible to take precautions.

Here are the customary, potential problem areas:

• Bookkeeping
• Cash disbursements
• Data processing
• Inventory control
• Purchasing
• Receiving

The two key steps you should follow:

Step one. Anticipate and analyze each area in which problems can arise. Write policies and strictly adhere to them in order to prevent thievery.

Here are the usual embezzlement red flags:

• Abnormal increases in sales returns, which can hide payments for accounts receivable.
• Atypical bad-debt write-offs.
• Abnormal declines or uncommon small increases in cash or credit sales. This might be an indicator of unrecorded sales.
• Bounced checks are often a sign of chicanery.
• Shortages in inventory can mean employee thefts via phony purchases and unrecorded sales.
• Negative surprises in expenses or profit decreases can result in money being tapped illegally.
• Sluggish collections can hide embezzlement.
• Employees who don’t take vacations or time off.
• Employees who live a surprising, extravagant lifestyle.
• Good managers walk the floor twice a day or make unannounced spot visits – be very wary of employees who resent such visits. Count on hidden problems.

Step two. Establish an internal audit system and divide responsibilities. Yes, segregate all accounting duties. At each financial stage – whether incoming or outgoing – scrutinize all procedures.

Here are 21 basic policies:

1. Use a system that prohibits alteration of checks. Make certain checks are countersigned by two responsible employees. (Do not allow signature stamps using the same names as the check signers.) Better yet, pay bills online.
2. Limit the dollar amount on checks. (It’s better if you authorize checks.)
3. Make certain a person – other than a check-signer – prepares payments.
4. Originals or copies of invoices and checks, including voided documents, are filed in numerical order.
5. Prohibit anyone other than the principal – you – to endorse checks for credit.
6. Determine who will receive checks and cash while designating someone else to record incoming funds, and appoint another person to take money to the bank daily.
7. Bank reconciliations are not handled by the same personnel who handle cash receipts and cash disbursements. Preferably, review bank statements online.
8. Regularly, at least once a month, mail statements.
9. Prevent wadding by examining payroll records. Monitor payroll tax records.
10. Conduct unannounced, spot audits.
11. Designate different employees for ordering supplies, receiving them, and for paying them.
12. More than one person should sign petty cash vouchers. Receipts should be numbered and attached, and filed numerically. Audit the cash drawer daily.
13. Set an example by never borrowing from the cash box.
14. Make sure the same employee who makes credit sales or loans does not write off bad debts.
15. Back up records on a daily basis. Do not allow the same person who handles accounting do any backups.
16. If you have a payroll person, ensure the payroll data is accessible to you.
17. To prevent unauthorized raises or other undesired payments to employees, audit payroll records at least once a quarter.
18. Lock up unused checks. Verify all checks and check numbers, including voided checks.
19. Take inventory once or twice per year.
20. Bond any bookkeepers or office managers. A good insurance agent will advise you. Make certain to follow all financial-control guidelines to avoid problems with the bonding company should an embezzlement occur.
21. Have your cash and accounts audited each year by an outside accountant.

Finally, listen to your instincts. Again, be on the lookout for turf-minded employees. If you suspect embezzlement, investigate and run to the police. Don’t hesitate.

From the Coach’s Corner, here related resource links:

• Primer for Best Practices in Preparing Financial Statements
• Accounting / Finance – Why and How to Determine Your Break-Even Point
• 6 Values for Financial Protection
• Management Strategies for a Successful Turnaround
• 8 Simple Strategies to Give You Pricing Power

“The average Joe should be just as concerned about embezzlement, even more so, because it’s so easy to do. All you have to do is be trustworthy to do it.”

-Peter Henning

  

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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

 

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