2010 Roth IRAs Profile To Increase Dramatically - Jan 6, 2010

Posted by: Steven P. Schertz in Articles

Amper, Politziner & Mattia wrote the article below about traditional and Roth IRA's. Retirement planning is something that individuals should review annually if not more so. We are not as diligent as our parents who saved for their retirement with a vengeance. Also, we will require more resources and capital in our retirement. Accordingly, effective tax rates on our retirement income may be higher than our parents.

The following article addresses traditional and Roth IRA's.

Next year marks the first year in which taxpayers, at all levels of income, will have the ability to convert funds in Traditional IRAs to Roth IRAs. This ability to convert will be a crucial aspect of retirement and tax planning for 2009, 2010 and 2011.

A conversion from a Traditional IRA to a Roth IRA is subject to Federal and State tax as if it were distributed from the traditional IRA and not re-contributed to another IRA. However, it is not subject to the 10% premature distribution tax.

2010 Change. For tax years beginning after 2009, the $100,000 modified adjusted gross income limit on conversions of traditional IRAs to Roth IRAs has been eliminated. Additionally, married taxpayers filing a separate return will also be able to convert amounts in a traditional IRA into a Roth IRA. This will grant everyone the ability to convert their Traditional IRAs to Roth IRAs.

Why convert?

   1. Distributions from regular IRAs are taxed as ordinary income. By contrast, Roth IRA distributions are tax-free if they are “qualified distributions.”
   2. Roth IRAs are not subject to the lifetime required minimum distribution rules that apply to regular IRAs in the year in which the owner attains the age of 70 1/2.
Unique factor for 2010 conversions. Gross income from the conversions in 2010 will not automatically be includible in taxable income for 2010; rather half will be includible for 2011 and the other half will be includible for 2012. However, a taxpayer may elect to include the full amount of the income from conversion in 2010.

Conversion Strategy is Especially Attractive to:

   1. Those who believe that the future tax free appreciation in a Roth IRA would more than offset the taxes paid on the conversion.
   2. High income earners who are not eligible to fund Roth IRAs. These taxpayers now have the ability to do so indirectly. By making non-deductible contributions to a Traditional IRA and subsequently converting the funds to a Roth IRA, these individuals now have a way to continually fund Roth IRAs.
   3. High net worth individuals who are subject to a wealth transfer tax. By transferring the funds from a Traditional IRA to a Roth IRA, the individual would be removing assets from the estate by prepaying taxes on the income and they will no longer be subject to required minimum distributions beginning at age 70 1/2. In addition, when the beneficiaries receive distributions from the Roth IRAs the income will be received tax free.
Special Added Feature – The Use of Hindsight!

An individual who converts from a Traditional IRA to a Roth IRA can later “back out” of the conversion by electing to re-characterize the IRA as a traditional IRA. If they wish, they can convert after 30 days. This re-characterization/reconversion strategy could be useful where, for example, the investments held in an IRA drop in value precipitously after a conversion to a Roth IRA. Re-characterizing the amount back to an IRA, and then reconverting it to a Roth IRA, can reduce the income arising from the Traditional IRA-to-Roth-IRA conversion.

Care should be taken as the top 2011 tax bracket is scheduled to be 39.6% versus 35% in 2009. An individual can elect to re-characterize up to the filing date of the return, including extensions. This could provide a 21 month window in which to make a decision.

Planning Tip:

Note that an individual can convert a traditional IRA into multiple Roth IRA accounts, each containing different investments. Doing so would allow the individual to “back out” of the conversion only with respect to the Roth IRA accounts containing investments that depreciated in value and not “back out” of the Roth IRA accounts that did not depreciate in value.

Does It Pay To Sell Your Company - Dec 13, 2009

Posted by: Steven P. Schertz in Articles

The decision to sell or retain a business is a question pondered by many business owners. Selling a business is a momentous decision and involves critical analysis and contemplation. Although there are a myriad of factors that influence this decision, most of the pertinent issues fall into two primary categories: Financial and Lifestyle Considerations.

Financial Considerations
Although the goal in any business sale is to maximize value, most informed professionals agree that selling a privately held, mid-market business is not akin to winning the lottery. In most instances you will receive more money by continuing to own a profitable company forever than selling it today for a single lump sum. Business owners are sometimes initially dismayed when presented with an objective, professional valuation of their companies. Some exclaim, “I wouldn’t sell for that! I could earn that much in the next four years by continuing to own my business.” This is a powerful statement, however this reactive conclusion is typically reached after a rushed analysis that produces an inaccurate result.

An accurate financial analysis must begin with an objective comparison of the net after tax cash flows that would likely be available from your continuing to own the business, compared with the expected net after tax proceeds if you were to sell the business. It is key to consider the tax ramifications of each option since the income remaining after taxes is most relevant.

Lifestyle Considerations
Selling a business is a big decision – and typically one that entails a reason beyond just money. The piece of mind of not bearing all of the risks by yourself, a lifestyle change, estate planning matters or net worth diversification can be significant motivators. It tends to be more of a lifestyle decision with a financial component than visa versa. Common factors include retirement, burn out, health issues, family matters, capital limitations, risk exposure or a blending of several issues.

Case Study
You are the owner of Widget Manufacturing, Inc., a Company with $15 million in sales and $2 million in recast EBITDA (Earnings before interest, taxes, depreciation and amortization). You are 62 years old with no children in the business and no succession plan in place. The business requires about 55 hours of your time per week, and you have personally guaranteed both the corporate lease and credit line. The Company has experienced steady annual growth that should continue into the foreseeable future. Business is good.

You receive an unsolicited $9 million offer from a qualified acquirer from within your industry. Your immediate reaction is one of disappointment stating: “Why would I accept that when I could make more by running the Company for another 4 years”. But would you really?

The $9 million purchase price would be taxed at approximately 26% capital gains rate (including Federal (15% through 12/31/2010) and State) that would apply to the amount remaining after subtracting your cost basis in the business. Assuming your basis was $4 million and the balance was taxed at the capital gains rate ($5 million taxed at 26%), your taxes on the transaction would be $1.3 million, leaving net after tax proceeds from the sale of $7.7 million.

Conversely, if you retained the Company, you are paying ordinary income tax rates commonly exceeding 40%. The after tax earnings would be approximately $1.2 million and it is likely that a significant portion of the profits will not be available for distribution since it will have to be reinvested back into the business. This simplified analysis suggests that it would take at least 7 years of continued working involvement to generate the net sale proceeds of $7.7 million. This is considerably longer than the original 4-year assumption.

If you retain ownership your long-term profit may eventually exceed what you would receive in a sale, but as the Company grows so do the working capital requirements. As accounts receivable and inventory balances swell, the drain on cash flow can be substantial. Moreover, capital expenditures to replace aging equipment as well as the new high-speed widget fabricators that will be needed next year in order to keep pace with the competition will cost “a bundle”. It becomes apparent that a substantial portion of your earnings will be needed to fund current and projected operations and cannot actually be taken out of the Company. The profits that are generated, whether or not they are available for distribution, will be taxed at ordinary income rates, which are significantly higher than capital gains rates that would apply to the business ....

Read more...

Cost Shifting Initiatives For Medical Benefits - Dec 4, 2009

Posted by: Steven P. Schertz in Articles

Vladimir St. Phard, President of Customized Benefits Solutions, Inc. also provides education for business owners with his eNewsletter. The following article about cost shifting initiatives to reduce benefit costs is from his December 2009 eNewsletter.

Cost-Shifting Initiatives In an effort to reduce benefit costs, many employers are implementing the following cost-containment strategies for 2010:

Rewards For Good Health Offer financial incentives to employees who have healthy habits and lifestyles or those who participate in wellness programs at work. Penalize workers with higher premiums for engaging in unhealthy activities such as smoking. Offer discounted rates for those who participate in wellness programs and maintain good health.

Preventative Care Benefits Offer full coverage for employees who seek preventative medical care and preventative drugs without a deductible, including vaccinations, exams and screenings for diseases such as breast, colon and cervical cancer, and blood pressure and cholesterol.
Onsite Health Centers Offer onsite health centers and staff health coaches to provide advice on personal health needs.

Catering to Individualized Needs Offer voluntary benefit options that meet personal and family needs such as homeowners, automobile and group life insurance. Also, offer discounts on vision, dental, massage therapy, chiropractic care, health club memberships and weight-control programs.
Communication Tools Provide online tools for employees on health education and estimation on their health care expenses.
Health Care Savings Accounts (HSAs) Offer HSAs with a high-deductible health plan (HDHP) as a way to promote consumerism and reduce costs. Reduce plan options.

Analyze Dependent Coverage Pay close attention to the spouses and dependents that employees enroll for benefits. Some companies require employees to pay higher premiums if their spouse can obtain health coverage through his/her employer. Conduct an eligibility audit to prove that dependents are considered legal dependents and remove ineligible dependents from the plan.

Align Your Goals Weave business goals with health goals and devise a way for individuals or departments to lose weight, start exercising and/or stop engaging in unhealthy habits. Utilize marketing techniques that will motivate employees to take action.

Co-insurance Instead of having employees pay a copayment of $10 or $15, require them to pay a percentage of their health care expenses (known as co-insurance). This may make your employers more aware of their expenses as well.

Encourage the Use of Generic Drugs Suggest that employees utilize the generic form of their prescriptions (if available) to save your organization and them money.

Take time this year to ensure that you are saving as much as you can be. Implement these new health options to reduce costs and have a healthier workforce.

CFO For Hire - Nov 4, 2009

Posted by: Steven P. Schertz in Articles

Many companies in the Tri-State area crave expert financial assistance with their books and records, banking relationships, property and casualty insurance. Most business owners don't know that help is an email or phone call away.
Recently, I was featured along with fellow partner and friend Joe Worth in an article published by New Jersey & Company Magazine that addresses outsourced CFO services.

My appreciation goes out to Bari Faye Siegel for this nice piece dated November 2, 2009 [click here for the article and great picture that's included].

Utility Savings Do Increase Net Income - Oct 7, 2009

Posted by: Steven P. Schertz in Success Stories

During a discussion with the CEO of a client, he asked if I’d review the Company’s utility expense for possible savings. Unknown to me, he contracted with a utility broker and executed a five year agreement. As part one of my due diligence, I contacted the broker to discuss the agreement. My thought was that the per kWh rate appeared above the current market rate. The broker turned out to be one of those exasperating individuals who never directly answer’s a question.

As part two of my due diligence, I researched suppliers in the eastern part of the United States and found a number of suppliers who were willing to provide a response to my Request for Proposal (“RFP”). It turns out that the market was somewhat cheaper than my client’s contracted price. In fact, it was approximately 2.4 to 3.0 cents per kWh less expensive. At 3 million kWh’s per annum, my client would save approximately $310,000 for a three year period.

I negotiated with two large suppliers and ultimately chose one, Constellation Energy. While my client may have to pay a penalty to the supplier he contracted with, his company will save over $300,000 during a three year agreement and more importantly, reduce the years under contract from five years to three.

Even The Sba Will Deny Your Loan Request - Sep 30, 2009

Posted by: Steven P. Schertz in Articles

Many small businesses find themselves squeezed for working capital. The business may be successful even during these strained economic times. However, there could desire for growth or just a safety net. Business owners find themselves working with their bookkeeper, outside accountants, and even we B2B CFO^®’s. We professionals know how to present financial data to a banker; we’ve been doing it for years.

Alas, the world has changed and we must change with it. We no longer assure our clients that banks will lend cash; we do make them understand the current environment. Case in point; I recently applied for an A.R.C. loan through a money center commercial bank. A.R.C. which stands for “American Recovery Act” is the federal program that provides guarantees to banks for interest and principal up to $35,000. The application is cumbersome for a business owner but not too cumbersome for a CFO. Upon working on the application, I found it strange that so much information was requested about the Owner rather than the Borrower, which in this case was a “C” Corporation. About six weeks after the application was submitted, my client received a notice from the lender that the loan was denied because his personal credit situation was unacceptable based on the program’s standards.

I was somewhat shocked; I thought this was a slam dunk. While it is true that my client has taken on some additional credit card debt (he wanted to repay the debt with the SBA loan), to keep his business afloat, this was the SBA, the Fed’s.  As Bob Dylan once sang, “the times they are a changing.”

It appears as if the economy is beginning to recover. I see it with certain clients; others are still running below last year’s sales. Now is the time for CFO’s to dig their heels in and begin to advise CEO’s to continue tightening their belts. In fact, we cannot counsel CEO’s, we must begin to insist that they heed our advice! We must look under all rocks, look at operations, look at employment, and see if there is any fat that can be eliminated. Get involved with the sales department. Share ideas, because the end game is cash accumulation. This will indicate to lenders that the business is real, is healthy and worthy of that credit facility for a rainy day.

4 Steps To A Winning Strategy - Sep 18, 2009

Posted by: Steven P. Schertz in Articles

I'm always reading business articles in order to help my business as well as my clients. My friend, Beth Zimmerman who is the principal of Cerebellas LLC, recently wrote the following article as part of her monthly newsletter. It is an excellent read and good source of information about business strategy.

Entrepreneurs are a special breed. More than most other professionals, they have a tremendous bias toward action: They like to be doing things, not thinking about doing things.

Yet in the blur of constant activity, many neglect or overlook an essential ingredient to a successful and sustainable business: strategy. Some entrepreneurs simply say they lack the time to think before they act. After all, speed to market can mean the difference between winning that next big gig and watching it get awarded to a competitor. In the end, most confess that they find strategy a little bit daunting, even mysterious--and are unsure how to implement a business strategy once they've figured out their strategic goals.

Like virtually all business activities, strategy development is a process. You don't build a house without a blueprint or drive cross-country without a road map. Similarly, you can't expect to achieve your business goals without a plan on how to get there.

Like any process, strategy can be broken down into basic steps:

1. See clearly. Vision is arguably one of the most overused and misunderstood words in the business lexicon, but it provides the context from which all good strategy can emerge. A company's vision is nothing more--and nothing less--than how it sees itself in the market over a long-term horizon, typically 10 years, but no less than five. A strong vision is simple, clear and easily comprehended by everyone in the organization; it creates a compelling picture of where the company intends to be in the future. Equally important, a company's vision helps to mitigate the potentially destructive lure of short-term thinking. Granted, every business needs to focus on the here and now, but the vision keeps it from becoming permanently near-sighted. What does your company "look like" in the future? What kinds of customers does it serve? What impacts or influences does it have? Why is it doing what it's doing? If you were to read a headline about your company 10 years from now, what would you want it to say?  
2. Think, act, deliver. Consider the companies with which you choose to do business. Chances are you choose them not just because they have the product or service that you need at a good value, but because you're attracted to the way they do business, how they treat you as a customer and how they handle problems that inevitably occur over the course of the relationship. You choose them, in part, for their values or ethos, which tells you how they'll handle any range of situations that might crop up and helps you predict their behavior over time. Values tell everyone--employees, customers, partners, investors and the like--how your business thinks, acts and delivers in everything it does. And they're an essential component to strategy because they help you distinguish those activities that are aligned with the fundamental purpose of your business. What is the overriding impression you want to leave in the minds of customers, prospects and partners? If they could say one word that describes how you treat them, what would you want that to be? Knowing you can't make every single business decision for your employees, what singular principle do you want to guide their actions more than any other?  
3. Read more...

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   Networking 101 And Then The Phone Rings - Sep 1, 2009

   Posted by: Steven P. Schertz in Articles

   One of the unusual elements of being a B2B CFO^® partner is networking. Upon returning home after training with Jerry Mills, we’re instructed to go out meet people and seek names. During the subsequent months, when we’re truly learning the ins and outs of networking we do as we’re instructed. We shake hands, smile, get business cards and set up appointments at people’s offices. Sometimes this leads to more names, more handshakes, more smiles and meetings with other business professionals. The culmination of this process is to meet a business owner who has a need for our services.

   How does this behavior benefit us, the business world as well as our clients? I’ve figured it out; it begins to create a stable of professionals, valued business acquaintances and business friends that we help and who help us.

   Case in point, the phone rang, it was an anesthesiologist who I met at a business group. He recently started a pain management business. We met at a local retail establishment in what appeared to be an interview for my services. I was elated that someone from this group, (which I recently resigned from), wanted to meet with me. He began by asking what a CFO does, how it benefits a business, etc. We discussed his startup practice, what his needs are; his thoughts regarding his needs were quite different than mine. We finally discussed networking, something that I’ve become comfortable and good at. His position is giving up a day per week (something that I do as part of my practice) was too much time and would cut into his revenue stream. My response was that if you don’t, short term you’ll be fine, longer term you’ll be back sitting across from me trying to figure out how to grow your top line.

   We went back and forth until he disclosed that his prior job was as an anesthesiologist at our local medical center. He went on to state that he wanted to get out in the local medical community, meeting with doctors from the hospital who could refer patients to him. I asked if he knew my family physician that holds a senior position at the hospital. His response was “he’s exactly the type of doctors I’d like to meet!” I stated that I’d make an introduction. He was grateful.

   The good news is as we were leaving, the light bulb went off in his head and he admitted that making time one day a week to network makes perfect sense.

   In the words of a former President, Mission Accomplished!

   The moral of the story is, one day the phone will ring. It will be a business professional, a purchasing agent, an executive of a business you’ve been trying to make a date with, who wants your service, your product, your advice. The only way that the phone will ring is to get out there, meet people, smile, shake a few hands, give out a few business cards, be nice to people. Not only does it go a long way to creating your place in this world, you may ultimately generate some revenue for your business.

   B2B CFO^® provides “C” level financial expertise to small and midsized businesses. We are currently 130 strong in 43 of the 48 contiguous states. Feel free to contact me to discuss networking or any other financial subject.

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   News On NJ Temporary Disability Benefits Plan Tdb - Aug 25, 2009

   Posted by: Steven P. Schertz in Articles

   As you may know, all NJ employers are required to have the state mandated Temporary Disability Benefits Plan (TDB).  If you haven't already received, you should be receiving your 2008/2009 Notice of Employer Contribution Rates (AC-174.1 form).  This form is sent out by the state in August/ September.  Not sure what the form looks like?  Click here for a sample notice.  (It may be that blue envelope sitting on your desk!) This notice gives your disability insurance contribution rate that you (the employer) pay towards temporary disability insurance.  Eligible employers can qualify for savings through a private plan based on their TDB renewal rate provided in the AC-174.1 form.       The law does allow employers to provide coverage through an approved private plan.  The private plan must be at least as liberal in benefits as the state plan.  Also, employees cannot be charged any more than they would have for the the state plan. In addition to savings, some of the benefits of switching to a private plan vs. the NJ state-provided plan are: Average claims turnaround time with a private plan is much shorter (4-5 days) than the 14 day turnaround time on the State plan. Private plans will pay the annual assessment that the State charges. Private plans offer employer and.... Read more... Your CFO Can Do The Job - Jun 29, 2009 Posted by: Steven P. Schertz in Articles Sharpen your pencil, make sure your intercompany and bank accounts are reconciled, Bankers are taking a hard look at their client's financial statements, and they're more critical than ever! During the past healthy US and worldwide economy, bankers have been passive observers of their client's financial condition. When bankers questioned a decrease in sales, management provided a compelling explanation. When various ratios were not in accordance with loan documents and covenants were missed, "C" level executives provided rationale that Bankers accepted and ultimately waived the covenant. This is no longer true! Bankers have begun to request that their clients begin searching for a new bank and banking advisor. Small business is the main target. History is repeating itself for when there is an economic down turn; the large money center banks have jettisoned their small business clients. The odd certainty is that when the economy turns, the large banks will send out their sales minions to bring the small guy back into the fold. The small and mid-sized business owner panics. That's where a keen financial executive provides the most value. He knows how to speak with a banker. When issues arise that the banker has discomfort, the financial executive can share ideas with the banker, find out what is needed to correct the uneasiness. Ultimately, if the Bank's underwriter is on board, the deal can be consummated. Many times, business Owners really don't know what the Banker needs, cannot be proactive since he's never really analyzed the number of transactions that an experienced CFO has during his career. Case in point, my client wanted a working relationship with its bank. He asked me to begin a search for a new one. I created a standard package of documents, schedules, etc. that I know any bank requires for any new customer. I sent the documents and set up an appointment with the bank. The banker's first comment was, "everything we needed to analyze the organization was submitted, and we have no further document requests." This was music to my ears because it created validity, credibility and put my client in the best light possible. So, sharpen your pencils, sit down with your CFO, and figure out your needs. If the need is to find a new Bank, hand the project to your CFO, he can do a successful job for the organization. Don't have a CFO; feel free to contact me by visiting www.b2bcfo.com/partners/sschertz.com The Goal - Jun 17, 2009 Posted by: Steven P. Schertz in Articles   THE GOAL Steven P. Schertz, CPA June 8, 2009 Alex Rogo, Plant Manager for the Uniware Division of UniCo Corporation continually struggles putting out fires. Although he has an Assistant Manager, Plant Controller, IT Director, etc., he does not create a positive manufacturing environment. Day after day problems arise that threaten the viability of his plant and his career. During a business trip to Chicago, he runs into an old college professor (Jonah), currently a successful business consultant. Both are waiting for flights and have a few minutes to chat. Jonah asks Alex about his life and Alex describes the problems he's encountering at his job. Jonah listens to Alex's story, asks some intriguing questions, and finally asks him an important question; "what is the goal of your manufacturing organization?" Alex responds, "to produce products as efficiently as we can." Jonah informs Alex that he is mistaken and asks again. Alex responds "power," then responds "market share." Jonah then leaves for his flight without providing an answer. At work the next day, Alex asks his Plant Controller to join him for dinner. The two executives approach the goal question with many ideas but no conclusion until they see the proverbial light and they conclude that the goal of any organization is to make money! "The Goal" written by Eiyahu M. Goldratt, goes on to describe how Jonah assists Alex and his plant staff in turning around the plant as well as teaching the business fundamentals of goal setting. Goal setting is a very important tool for business owners. A recent article suggested that individuals who set clear and concise written goals will earn ten times more than those who don't utilize goals in their professional careers. Consider the choices you've made in your past. For those of us who did not set goals, would our paths have been different? We use written goals in our personal life daily. Consider going to the supermarket. We create a list of groceries to purchase. The goal is to fill the shopping cart with all items on the list. When we fail to purchase an item, or if an item is unavailable, we feel unfulfilled. Conversely, if the list is satisfied, we feel elated. Business goals are no different. Ron Willingham in his book "Integrity Selling for the 21st Century" discusses how "strong goal clarity" is a trait that high achievers possess. He defines goal clarity as "having clear, specific written goals of what you want to have happen in your future. They must be goals that you deeply desire, and most important, goals you firmly believe are possible for you to achieve, and that you feel you deserve to achieve." Let's analyze some of these terms. Clear, specific written goals - Writing them down seems easy, however where does one start. At a recent meeting, one of my partners made a presentation on goal setting. He shared his goals for 2009. All goals seemed clear, concise and in writing. I asked him to describe the logic or barometer that was used to create the goals. He stated that all goals were derived from annual revenue. Goals that you deeply desire - consider the emotional impact of desire. Alex Rogo almost ruined his marriage in attempting to succeed in turning his plant around, his ultimate goal. Fortunately, he succeeded and resurrected his marriage. Goals that you firmly believe are possible and deserve to achieve - During my career as a CFO, I always felt that higher compensation was possible and that I deserved to achieve higher earnings because of my contribution to the organization. How do business owners use this very important tool? They probably don't realize that they use some form of goal setting periodically; an annual budget, a sales projection, or reducing operating expenses.  My experience is that they misuse their entrepreneur talents which include goal setting. They call meetings of senior executives without clear written meeting goals, even if they have an agenda. This leads to lengthy meetings that do not create value for the individuals nor the organization. Perhaps the following suggestions are appropriate: Utilize your time to set clear, concise written goals for the benefit of the organization. Have senior management do the same. Set goal guidelines. Reinforce management's needs to have goal setting meetings, to share ideas.... Read more... Going Concern Warning Even For Healthy Cos. - Jun 17, 2009 Posted by: Steven P. Schertz in Articles   Going-Concern Warning, Even for Healthy Cos. By Tammy Whitehouse - June 16, 2009 Companies fortunate enough to dodge the "going concern" bullet for annual reports filed this spring aren't necessarily out of the woods, according to audit firms that remain on the lookout for indicators of distress. RELATED RESOURCES PwC Alert on Going Concerns (April 23, 2009) Audit Considerations in Current Economic Climate (Dec. 5, 2008) Olson Speech With Going-Concern Mention (Dec. 8, 2008) Related Coverage Staying Alive After Going Concern Warning (March 17, 2009) Auditors Told to Get Skeptical (Dec. 16, 2008) Optimists have begun to point to signs that economic recovery may be creeping across the horizon. Yet even if that's true-and it may well not be-companies with healthy operations are still at risk for financing problems that could raise doubt about the entity's ability to remain in business, or a going concern, says Catherine Bromilow, a partner with PricewaterhouseCoopers' corporate governance practice. Bromilow Tranches of corporate debt written in better times and under better terms are coming due over the next few years, she says, but constrictions on credit remain persistent. That means healthy companies could still run into trouble when current debt comes due. And if companies are in any danger of violating debt covenants, the situation can quickly turn ugly, Bromilow adds. Debt covenants typically are tied to income from continuing operations and key balance sheet ratios. But impairment charges, or reductions in capital, can reduce income and weaken the balance sheet even for companies still generating cash. "We want to give directors a heads-up on this," Bromilow says. "Even if the company is continuing to generate cash and earnings, there are a few strange things we've been seeing in the last six months that we don't want you to be surprised about. Don't be surprised if you're getting into pretty difficult conversations, even when for all intents and purposes you have a healthy company." Berliner David Berliner, a partner with BDO Seidman's consulting wing, says auditors are only required to make a going-concern determination in connection with the year-end audit. Still, auditors encourage companies to keep the conversation going year-round to minimize the chance of an unpleasant year-end surprise. "We're trying to work on planning techniques to try to identify issues sooner than in the past," he says. That means companies can expect year-round questions that might indicate doubt about the ability to continue as a going concern, Berliner says. "Don't be surprised if you're getting into pretty difficult conversations, even when for all intents and purposes you have a healthy company." -Catherine Bromilow, Partner, PricewaterhouseCoopers Auditors also are taking a much deeper dive into the going-concern analysis, says Pat Ross, a partner at Southern California regional audit firm Haskell & White and the firm's resident expert on going-concern issues. While the majority of the audit work involves verifying historical data, the going-concern analysis requires a subjective look 12 months into the future to predict if the company will have trouble remaining in business-which can involve questions and information quite different than what's used in the rest of the annual audit. And auditors are.... Read more... Cash I Can Help You Get It - Jun 14, 2009 Posted by: Steven P. Schertz in Articles    B2B CFO® is known for it's ability to assist its clients find cash. In fact, our logo "Cash, we help you get itTM communicates this ability. Last week, B2B CFO® issued a press release regarding the success our clients enjoy in getting cash.  Would you be surprised to know that during a six month period in late 2008 to early 2009, our partners assisted their clients in obtaining over $250 million of bank financing? We did! I've attached a link to the press release for your reading pleasure. Please let me know if there is anything that I can do to assist you and your company in obtaining bank financing. http://www.b2bcfo.com/partner/jmills/2009_06_11_B2BCFOLendingFinal.pdf   Be Prepared When Your Company Applies For A Commercial Loan - May 17, 2009 Posted by: Steven P. Schertz in Articles       Two of my clients are in need of a new banking relationship as well as a line of credit. One client needs a modest line of $100,000, the second $1,000,000. They are both seeking a bank and banker who desires to become a trusted advisor to their organizations. Both have concluded that the large money center banks no longer want to conduct business with small to mid-sized business. In order to prepare my clients for the process, the Principals and I met so that I could provide some insight about the process, especially given the conservative approach that banks are exhibiting. I instructed them that the following must be prepared based on each banks requirements: 1. An executed loan application. 2. A full set of financial statements (Balance Sheet, Statement of Operations and Cash Flow Statement) for two to three prior fiscal years. 3. US Corporation Income Tax Returns for the prior two to three fiscal years. 4. US Individual Income Tax Returns for all principals for the same period of time. 5. Current financial statements. We also discussed upcoming meetings between Bankers and Principals. I advised my clients that during these meetings to stay focused, be honest (to questions), succinct (with their responses) and not to provide any information that is requested. The risk of making a misstatement that the Banker does not want to hear can be overwhelming. I also advised them to allow me to represent the organization because I have in excess of 25 years dealing with banks, understanding how bankers think, negotiated loans and credit lines and forming relationships between the bank and the companies that I've been employed by. Both clients are overwhelmed by the process. I believe that they intuitively know that banks are being very careful because their management has turned conservative. They also understand that local and regional banks are conducting business and want to form new relationships with businesses such as my clients. In discussing business with my banking contacts, all have confirmed that their organizations are willing and able to make loans, form new relationships, and provide excellent service. They have also confirmed that businesses need to have all their "ducks in a row" because Bank underwriters are being quite careful with their approvals. This is not to say that companies whose financials are not the best will be denied credit, in fact many bankers that I have spoken to truly understand that companies had difficulties in 2008. Banks are willing to take this into consideration as long as current financial conditions have changed. I've concluded that Banks want to understand a new business history, operations, revenue stream, and the Owners. They also want to talk to and deal with a financial expert in order to expedite and complete the process. Is Quality Better Than Quantity - Apr 10, 2009 Posted by: Steven P. Schertz in Articles My practice was recently in transition. I have a number of clients who are utilizing my expertise and time. Previously, my time was spent networking, managing it was much easier. I thought about the issue and decided that while meeting as many people as possible through networking events is good, taking a hard look at my contact list is essential. We are taught to create goals, to write them down, to make them clear and concise. I have given this a lot of thought and effort, since it is important to incorporate networking goals into my practice. I have decided that Quality is better than Quantity! Here are my thoughts which can be used for many different types of goals: 1. Getting to know you - I really want to get to know specific business folk much better. I've already figured out that their friendship grows when I contribute more than "I'll see you at the next networking meeting." 2. Provide the benefit - I want to be able to provide a benefit to them which I believe is impossible if quantity trumps quality. How would I know what their needs and desires are, if I don't get to know them on a more professional and personal level? 3. Reap the benefit - Every networking friend or acquaintance that I've met agrees that taking the time to form a relationship allows them to make introductions (to me) of their network of professionals as well as decision makers. 4. Become a better professional - I'm convinced that we gain experience and expertise from others. Whether from individuals who have mentored us or individuals whom we mentor, we grow professionally. The same holds true for networking, we gain from the contacts we know and become more intimate with. 5. The business comes to those who are patient - is really what the lesson is for me. We must be patient; the business will flow because there are too many small to mid-sized businesses that need a B2B CFO to assist them in running their business, providing strategic planning, etc. Business owners ultimately benefit from our goal setting and strategically networking with a smaller group of professionals.  How does this occur? My thought is that a banker, lawyer, CPA, insurance broker, those professionals who we meet, who we invest our valuable time with, ultimately will make a call, to a decision maker, say some kind words about us, about our professionalism. The decision maker then feels better about investing his/her time with us. Ultimately, this part of rapport will lead to a long term engagement, to a long term relationship that not only benefits us, but will ultimately benefit the business owner, his business and personal life. Business Buy Some Capital Assets - Apr 1, 2009 Posted by: Steven P. Schertz in Articles During the recent Presidential campaign, pundits charged that the Democratic candidate would increase taxes on the business community. One of the ways that taxes would be increased was the elimination of the bonus depreciation (IRC section 179) rules. As it turns out, the Congress and President Obama, as part of the recently passed Stimulus Package, further liberalized these rules. In 2007, the maximum bonus depreciation was $125,000. For 2008, this amount has been increased to $250,000. What does this mean for the business community? If a business spends the maximum allowance, for a qualified asset, the tax savings will be $87,500 in the year of purchase or 35% of the purchase price. Think about the implication of this benefit. The Federal Government is writing a check to any business that spends its capital on fixed assets equal to 35% of the purchase. It's like going to a department store and buying a $50.00 shirt for $32.50. I'd purchase a whole bunch of $50.00s shirts for $32.50. What is Section 179 property? It is property that you acquire by purchase for use in the active conduct of your trade or business. In English, if you purchase a machine for your business, and it costs less than $800,000, you can write off (expense) the first $250,000. The balance would qualify for normal depreciation. Why did the government liberalize these rules? It's simple, to spur the economy. One was that the government uses tax legislation, is to affect the United States economy. In 1980, then President Ronald Regan asked the Congress to spur the economy. What did the Congress do? It liberalized depreciation rules, specifically, real property deprecation. Prior to the change, real property was depreciated over 30 years. Once the Congress did its thing, real property depreciation was 15 years until 1986. Real Estate developers began developing commercial property with a passion because they knew that they would recoup their investment in 15 years.  Banks were willing to place mortgages on these commercial properties because, when everything else was equal, the developers would reduce their Federal Income Tax expense, providing free cash to repay the mortgages. Businesses purchased land and built corporate offices. The list of those taking advantage was huge. The change in the tax law did what was intended, to spur the economy. There are some rules that businesses need to follow.  For example, you cannot deduct more than your net taxable income as bonus depreciation. Certain types of assets do not qualify. You should discuss these issues with your tax accountant, or you can discuss it with your part time B2B CFO who has a keen knowledge of the requirements of Section 179 depreciation. Your B2B CFO can provide you with the knowledge base to make certain strategic decisions to take advantage of the change in the tax law. Feel free to visit the B2B CFO website at www.b2bcfo.com. Increase The Cash Flow And Value For Your Business - Mar 20, 2009 Posted by: Steven P. Schertz in Articles   A friend of mine, Mark Green is the owner of Performance Dynamics Group LLC, which provides strategic services to small to mid sized business. He and I have formed and continue to form a business relationship to enhance each others practice. He wrote the following article, which I thought was excellent reading for our partners and clients. Business owners can affect these value drivers with financial professionals such as B2B CFO Partners. They tackle these issues every day and have done so throughout their careers. Small to mid-sized business owners can be assured that our partners will provide the results required to positively affect your business, including asssiting in growing your business EBITDA, culminating in increased value for your company. Visit our web site at http://www.b2bcfo.com/ to contact a B2B CFO to assist your business. What Are You Doing to Enhance Your Value Drivers? March 9, 2009 In a recent article entitled "Economic Downturn Gives Owners Time to Work on Value Drivers," my good friend Eric Donner, Managing Member of Regal Wealth Advisors, (www.regaladvisors.com) reviews how important value drivers are to maximize a business' selling price. He goes on to point out that it is the work of the owner - not employees - to create and to nurture them. Value drivers include: A stable and motivated management team. Operating systems that improve sustainability of cash flows. A solid, diversified customer base. A realistic growth strategy. Effective financial controls. Stable and improving cash flow. Due to the freeze in credit markets and a slowdown of M&A, today's economic environment - for the foreseeable future - gives owners time to install and/ or improve value drivers in their companies. It also gives them time to demonstrate the sustainability of the value drivers they create. Buyers want to know that success or growth charted in one year can be maintained over several years. They bank on (and pay for) a company's potential to grow, so they look very carefully at how long a company's value drivers have yielded positive results. Experienced owners know that change takes time. Really experienced owners know that positive results from those changes take even longer - likely longer than even they expect. Regardless of when you might sell, it makes good sense for owners to concentrate on those elements of their businesses that create more cash flow, more sustainability, and more future value. After all, isn't this why you're in business? A great place to start is to evaluate how you're doing currently with respect to each value driver and then put a plan in place to improve each one - steadily and continually - over time. Then, when it finally is time to sell, you'll be assured a handsome return for having built something of lasting value. Since founding Performance Dynamics Group LLC in 2003, Mark Green has spoken to and consulted with hundreds successful, closely held businesses and partnerships, helping them escape the frustration of being reactive. This enables them to stick to their own agenda and take more proactive control of their own destiny.  Our clients say that their relationship with us produces significant, measurable improvements to areas including cash flow, profitability, competitive advantage, sales and marketing effectiveness, and employee and customer loyalty. If you would like to understand how our work might be just the right fit for your business, give us a call at (888) 720-7337 To learn more and to subscribe to our free monthly eNewsletter, visit us on the web at http://www.performance-dynamics.net/ or read Mark's blog at http://www.sustainablebusinesschange.com/. Do You Know What Your Book Balance Is - Mar 10, 2009 Posted by: Steven P. Schertz in Articles Do you know your personal cash balance? Hey business owners, do you know your company’s book balance? Given today’s on-line mentality, many business owners feel that all they have to do is log onto their banks web site and print out their daily cash sheet. Boy, are these owners heading down a path to failure. I recently asked a prospective client if he knew what his book balance was. He drank the cool aid and replied; I log into my banks web site and look up the cash balance. Upon informing him that he was not viewing his “book” balance but was in fact viewing his “bank” balance, he gazed with that question in his eyes. When I then asked if he knew whether he had sufficient funds to write and mail the next check (payment) to a vendor, he did not know. Finally, I provided some basic cash management education. I informed him that his bank balance was not adequate to operate his business because checks released but not yet presented (paid) to his bank, are not deducted from the amount viewed (cash balance) on the web site. If his business maintains its books and records on a current, accurate basis, he will always know with complete certainty, whether he can release the next check. There is a motto that I learned early in my public accounting career during a seminar on cash; “Cash is King!” In today’s business world, where the next sales order is questionable and customers are having increasing difficulties remitting their vendors invoices timely, Cash is King. It is imperative that business owners know daily what their business can and cannot afford. Finally, it is strategic that the Owner knows weekly, monthly and quarterly what their cash balance is and will be given the current level of sales and operating expenses. Only a professional who has spent the majority of his business career advising business owners can provide the benefit that organizations need in today’s economic climate. A partner of B2B CFO® has this expertise that business owner must have! Find that individual by opening your internet browser and entering “www.b2bcfo.com” Risk Essentials For Business Owners - Jan 8, 2009 Posted by: Steven P. Schertz in Articles Risk is an interesting subject since it can affect an organization in different ways. Most non-financial folk think of risk and associate it with purchasing insurance. While insurance mitigates some types of risk, other forms of corporate risk; theft, lost sales, lost cash, and inefficiency must also be considered. These risks are mitigated by sound internal controls. Sarbanes-Oxley ("SOX") was created to identify risks and establish controls. The original SOX pronouncement (AS-2) stated that risks (and associated controls) were identified from the bottom of an organization and up. After a few years, the architects at the SEC decided that this was not the best method for identifying risk. They rolled out AS-5 which suggested that a top down approach to risk was more appropriate. Remember that an audit opinion includes the auditor's examination of internal controls; whether they are functional or cannot be relied upon. When they cannot be relied upon, auditors will increase the scope of their work in order to satisfy themselves, on a transactional basis that controls do not have to be relied upon. Audits aside, how does a lack of controls affect the day to day functioning of an organization and associated risk?  Consider companies who do not have the owner walking the office/plant/factory/warehouse. How is he ensured that the organization is not losing money through inefficiencies, lack of controls, etc? Part of the answer is to delegate authority and responsibility (I believe that authority is the greater attribute), to professionals who know how to create controls, monitor them, set up systems that sets off the bells and whistles when controls fail. One group of professional's who are experts in internal controls is, of course, are outside auditors/CPA firms. However, they may be precluded from performing an audit if they are too involved with their client in a non-audit environment, and are not the only experts. Another group of experts in process and controls are CFO's. A CFO lives and breathes controls because he/she knows that no senior executive can be in all places at all times. He/She takes pride in the fact that controls are properly created and functional, to the benefit of the organization. He/She also knows that his/her job, responsibility and authority are enhanced by mitigating risk through controls. Controls are needed for all size organizations, from the small growing organization where the Owner/Entrepreneur is doing many tasks, and keeping his finger on the pulse, to the mid to large company that has desegregated tasks due to geography or size. One point to always keep in mind is that good controls will ultimately reduce expenses because they create efficiencies and mitigate loss. 12 Sitemap |  About Us |  CFO Services |  Find A B2B CFO |  TV |  PR |  FAQ |  B2B CFO Directory |  Office Locations |  B2B CFO Careers |  Why B2B CFO? |  Part Time CFO |  CFO Wise vs B2B CFO |  CFOwise |  Kenneth Kaufman |  B2B CFO® Blog Copyright © 2011 B2B CFO Partners, LLC dba B2B CFO® (877) 4-B2BCFO info@b2bcfo.com 2415 E. Camelback Rd, Suite 700 Phoenix, AZ 85016 Zoom in using the +/- tools on the left. Click on each photo for more details.