At the very least, update the financials in your business plan
Every new company should launch with a business plan and keep it updated. Generally, such a plan will comprise six sections: executive summary, business description, industry and marketing analysis, management team description, implementation plan, and financials.
Now, ideally, you would comprehensively update each section every year. But if the size, shape and objectives of your company haven’t changed all that much, you may not need to make major revisions to the entire plan. However, at the very least, you should always review and revise your financials.
Explain your route
Lenders, investors and other interested parties understand that descriptions of a business or industry analysis may be subject to interpretation. But financials are a different matter — they need to add up (literally and figuratively) and contain realistic projections in today’s dollars.
For example, suppose a company with $10 million in sales in 2019 expects to double that figure over a three-year period. How will you get from Point A ($10 million in 2019) to Point B ($20 million in 2023)? Many roads may lead to the desired destination; your business plan must explain its route.
Let’s say your management team decides to double sales by hiring four new salespeople and acquiring the assets of a bankrupt competitor. These assumptions will drive the projected income statement, balance sheet and cash flow statement referenced in your business plan.
Justify assumptions
When projecting the income statement, you’ll need to make assumptions about variable and fixed costs. Direct materials are generally considered variable. Salaries and rent are usually fixed. But many fixed costs can be variable over the long term. Consider rent: Once a lease expires, you could relocate to a different facility to accommodate changes in size.
Balance sheet items — receivables, inventory, payables and so on — are generally expected to grow in tandem with revenues. The financials in your business plan must accurately and reasonably justify the assumptions you’re making about your minimum cash balance, as well as debt increases or decreases to keep the balance sheet balanced. And these amounts must be current.
From a lending perspective, your bank will be expected to fund any cash shortfalls that take place as the company grows. So, realistic cash flow projections in your business plan are particularly critical. The financials section should outline how much financing you’ll need, how you intend to use those funds and when you expect to repay the loan(s).
Keep it fresh
Your business plan needs to tell an accurate, objective story of your company — where it’s been, where it is right now and where it’s heading. Keep the whole thing as fresh as possible but pay special attention to the numbers. We can help you review your financials, arrive at reasonable assumptions, and express your objectives and projections clearly.
© 2019
Does your team know the profitability game plan?
Autumn brings falling leaves and … the gridiron. Football teams — from high school to pro — are trying to put as many wins on the board as possible to make this season a special one.
For business owners, sports can highlight important lessons about profitability. One in particular is that you and your coaches must learn from your mistakes and adjust your game plan accordingly to have a winning year.
Spot the fumbles
More specifically, your business needs to identify the profit fumbles that are hurting your ability to score bottom-line touchdowns and, in response, execute earnings plays that improve the score. Doing so is always important but takes on added significance as the year winds down and you want to finish strong.
Your company’s earnings game plan should be based partly on strong strategic planning for the year and partly from uncovering and working to eliminate such profit fumbles as:
- Employees interacting with customers poorly, giving a bad impression or providing inaccurate information,
- Pricing strategies that turn off customers or bring in inadequate revenue, and
- Supply chain issues that slow productivity.
Ask employees at all levels whether and where they see such fumbles. Then assign a negative dollar value to each fumble that keeps your organization from reaching its full profit potential.
Once you start putting a value on profit fumbles, you can add them to your income statement for a clearer picture of how they affect net profit. Historically, unidentified and unmeasured profit fumbles are buried in lower sales and inflated costs of sales and overhead.
Fortify your position
After you’ve identified one or more profit blunders, act to fortify your offensive line as you drive downfield. To do so:
Define (or redefine) the game plan. Work with your coaches (management, key employees) to devise specific profit-building initiatives. Calculate how much each initiative could add to the bottom line. To arrive at these values, you’ll need to estimate the potential income of each initiative — but only after you’ve projected the costs as well.
Appoint team leaders. Each profit initiative must have a single person assigned to champion it. When profit-building strategies become everyone’s job, they tend to become no one’s job. All players on the field must know their jobs and where to look for leadership.
Communicating clearly and building consensus. Explain each initiative to employees and outline the steps you’ll need to achieve them. If the wide receiver doesn’t know his route, he won’t be in the right place when the quarterback throws the ball. Most important, that wide receiver must believe in the play.
Win the game
With a strong profit game plan in place, everyone wins. Your company’s bottom line is strong, employees are motivated by the business’s success and, oh yes, customers are satisfied. Touchdown! We can help you perform the financial analyses to identity your profit fumbles and come up with budget-smart initiatives likely to build your bottom line.
© 2019
Prepare for valuation issues in your buy-sell agreement
Every business with more than one owner needs a buy-sell agreement to handle both expected and unexpected ownership changes. When creating or updating yours, be sure you’re prepared for the valuation issues that will come into play.
Issues, what issues?
Emotions tend to run high when owners face a “triggering event” that activates the buy-sell. Such events include the death of an owner, the divorce of married owners or an owner dispute.
The departing owner (or his or her estate) suddenly is in the position of a seller who wants to maximize buyout proceeds. The buyer’s role is played by either the other owners or the business itself — and it’s in the buyer’s financial interest to pay as little as possible. A comprehensive buy-sell agreement takes away the guesswork and helps ensure that all parties are treated equitably.
Some owners decide to have the business valued annually to minimize surprises when a buyout occurs. This is often preferable to using a static valuation formula in the buy-sell agreement, because the value of the interest is likely to change as the business grows and market conditions evolve.
What are our protocols?
At minimum, the buy-sell agreement needs to prescribe various valuation protocols to follow when the agreement is triggered, including:
- How “value” will be defined,
- Who will value the business,
- Whether valuation discounts will apply,
- Who will pay appraisal fees, and
- What the timeline will be for the valuation process.
It’s also important to discuss the appropriate “as of” date for valuing the business interest. The loss of a key person could affect the value of a business interest, so timing may be critical.
Are we ready?
Business owners tend to put planning issues on the back burner — especially when they’re young and healthy and owner relations are strong. But the more details that you put in place today, including a well-crafted buy-sell agreement with the right valuation components, the easier it will be to resolve buyout issues when they arise. Our firm would be happy to help.
© 2018
Factor in state and local taxes when deciding where to live in retirement
Many Americans relocate to another state when they retire. If you’re thinking about such a move, state and local taxes should factor into your decision.
Saving tax on restricted stock awards with the Sec. 83(b) election
Today many employees receive stock-based compensation from their employer as part of their compensation and benefits package. The tax consequences of such compensation can be complex — subject to ordinary-income, capital gains, employment and other taxes. But if you receive restricted stock awards, you might have a tax-saving opportunity in the form of the Section 83(b) election.Read more
It’s time to get more creative with retirement benefits communications
Employees tend not to fully appreciate or use their retirement benefits unless their employer communicates with them about the plan clearly and regularly. But workers may miss or ignore your messaging if it all looks and “sounds” the same. That’s why you might want to consider getting more creative. Consider these ideas:
Brighter, more dynamic print materials. There’s no getting around the fact that printed materials remain a widely used method of conveying retirement plan info to participants. But if yours still look the same way they did 10 years ago, employees may file them directly into the recycle bin. Look into whether you should redesign your materials to bring them up to date.
A targeted number of well-formatted emails. You probably augment printed materials with email communications. But finding the right balance here is key. If you’re bombarding employees with too many messages, they might get in the habit of deleting them with barely a glance. Then again, too few messages means your message probably isn’t getting through. Also, like your printed materials, emails need to be well written and formatted.
Social media. Some employers have tried using their social media accounts to keep employees engaged and reminded about benefits. The effectiveness of this will depend on how active you are on social media and how many staff members follow you. It may work well if you have a younger workforce.
“Gamification.” As the name suggests, gamification involves incorporating some fun and a competitive element into benefits education — offering virtual rewards, status indicators or gift cards to successful competitors. Games can include quizzes testing employees’ understanding of their benefits or the fundamentals of retirement planning.
Robocalls. Granted, this may not be an immediately enticing option. These prerecorded calls have largely gotten a bad reputation because of their overuse for sales purposes. But, some employees may appreciate an occasional robocall as a reminder or update that they may have otherwise missed.
Making the problem of benefits communication even tougher is the fact that many companies budget little or even nothing to accomplish this important task. But, considering the cost and effort you put into choosing and maintaining your retirement benefits, effective communication is worth some investment. Let us know how we can help.
© 2018
Personal Finance Tips for Young Adults
As a young person, considering anything finance-related can seem light years away. In reality, knowing how to manage your finances and plan for the future should occur in your early years. This will help in learning responsibility at a young age, giving you a clearer perspective on money management. Learning how to appreciate money and use it wisely at a young age will also help with accumulating savings and being able to do things without going into debt.
Here are a few tips:
Get a financial education
It’s wise to know about finances as you are going through grade school. Learning how to write a check, balance a checkbook, what a stock and bond is, and how credit cards and credit works are all important. The more education you have, the better prepared you will be.
Open an account
Having a savings or checking account can assist in learning how to save money. Young adults should have some mechanism that will allow them to save and watch their money work for them. Learning how to save for what you want, while earning some interest on that money will impart good finance habits early on.
Find ways to earn money
Learning how to earn and appreciate money should come at a young age. This means saving some of your allowance, taking on small jobs and perhaps getting a job in high school prior to graduating to contribute to your future endeavors. This also helps in being responsible for money and will paint a clearer picture of how much things cost and how quickly large sums can be blown.
College
Thinking about whether or not you want to go to college should happen as you’re going through middle and high school. Even though this is a major investment, it can pay off in the future. Getting your degree while you’re still young and don’t have as many responsibilities is advantageous. Additionally, you or your parents will qualify for education credits that can help during tax time.
Parents may wonder whether or not their teenager should file a tax return if they are working. There are certain criteria that will help you determine whether or not they should file. You should look at how much your teenager made and whether or not they can be claimed as a dependent on your tax return.
There are limits to how much they can make before they are required to file. If they earned less than $6,300 in 2015, they do not have to file.
What makes the teenager a dependent?
- If the teenager is under the age of 19 up to age 24 and a full-time student,
- If they live with you more than 50% of the year; and
- If they do not provide more than half of their financial support.
As your young adult begins to work more, having a background in finances can help them avoid excessive debt. If they obtain a credit card, teaching them how to be responsible in using the credit card will make a huge difference in the way they view money. Additionally, educating them on student loans and how they can potentially get out of hand is also very important.
These tips and suggestions should assist in keeping your young child or teenager financially aware and prepared to use money wisely, as well as make responsible decisions on how their money is used now and in the future.