Articles by dsauder

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2015 Business Leader of the Year: Kevin Marsh, CEO,

Preface: 2015 tax bills have you concerned, occupy yourself with what these people said about this 2015 business leader….. A servant leader….. Leader of the Year: Kevin Marsh, CEO, SCANA Corporation Career History Chairman/President/CEO/COO Scana Corp, 12/2011-PRESENT Deloitte & Touche LLP, 1977-PRESENT President/COO South Carolina Electric & Gas Co, 4/2006-2011 President/COO Scana Corp, 1/2011-12/2011 Senior Vice President Scana Corp, 4/2006-1/2011 Senior VP/CFO South Carolina Electric & Gas Co, 1998-4/2006 Senior VP/CFO Scana Corp, 1998-4/2006 President/COO Psnc Energy, 2001-2003 Chief Financial Officer Scana Corp, 1996-1998       Kevin Marsh Chief Executive Officer, SCANA Corp. Education – Bachelors in accounting from the University of Georgia Hobbies – Cars, preferably fast ones Quote – “I’m not your typical accountant. People like to peg us as these boring nerdy kinds of guys who don’t ever do anything. I know a lot of accountants, and we don’t fit that bill. We are normal people and we have a great time.”


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Financial Statements – Synthesis and Analysis – Part II

Preface: Many entrepreneurs vaguely appreciate, and typically do not gain adequate value from the quality assurance of their businesses financial statements, namely because they are unaware of how to synthesize and analyze the information in-depth. In this blog, we will highlight key areas of a financial statement, and provide advice to improve the value of the CPA’s work to the entrepreneur. Financial Statements – Synthesis and Analysis – Part II Statements of cash flows show the businesses liquidity, solvency and financial flexibility. A statement of cash flows shows sources and uses of cash in three classifications, i) operating ii) investing iii) financing. Operating cash flows begin with net income and adjust for changes in current assets and liabilities, including inventory, accounts receivable, accounts payable or say accrued wages. Operating cash flows show increases and decrease in operating balance sheet accounts. Investing activities show cash uses for equipment or investment purchased, or cash received from repayment of a note receivable. Financing cash flows show cash uses for repayment of debt, cash received from an increase in a line of credit or other financing activities. What to look for on statement of cash flow? Decreases in accounts receivable and accounts payable indicate good collection efforts and adequate cash management. A decrease in accounts receivables is an increase in cash flow, and a decrease in accounts payable is a decrease in cash flow. Statements of cash flow most importantly, should always have increases in cash from operating activities. A decrease in cash from operating activity cash flows, indicates a deterioration in business operation activity for the period. If operating cash flow is negative for the fiscal year, or consecutive fiscal years, the business needs to take immediate action to determine causes, e.g. market shifts in key products or services, slack customer demand or…


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Financial Statements – Synthesis and Analysis – Part I

Preface: Many entrepreneurs vaguely appreciate, and typically do not gain adequate value from the quality assurance of their businesses financial statements, namely because they are unaware of how to synthesize and analyze the information in-depth. In this blog, we will highlight key areas of a financial statement, and provide advice to improve the value of the CPA’s work to the entrepreneur. Financial Statements – Synthesis and Analysis Financial statements characteristically provide a minimum of three reports: i) a balance sheet ii) income statement iii) statement of cash flows. The balance sheet shows the financial position of the business at specific period of time, i.e. fiscal year end or the quarter, say Q1. The balance sheets lists only three main segments – Assets, Liabilities, and Equity. The balance sheet is like a bank statement, it’s only accurate for that specific day. The income statement typically follows the balance sheet, measuring operating performance, i.e. revenues, cost of sales, and operating expenses, for a specific period of time, e.g. fiscal year, or quarter. The income statement is a summary of the businesses bank account activity for period. The income statement begins with revenue. Revenue is the income obtained from the sale of products or services. Just because a business has significant net income for the period, is not to say the business has adequate liquidity (ability to pay current liabilities with cash obtained from current assets). Typically, businesses use accrual accounting with a few exceptions. With accrual accounting, when inventory (an asset) is sold, the inventory account decreases, say $50 on the balance sheet, and a cost of sales (an expense) on the income statement increases $50, simultaneously. Then from the sale, revenue increases, say $100, on the income statement, and accounts receivable (an asset) increase $100 on the balance sheet. When a…


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Skills Every Chief Financial Officer Needs – Part II

Preface: If you’re hiring your first CFO, for your fast developing entrepreneurial momentum, this blogs is to help you appreciate the skills a CFO can and should bring to your business. Skills Every Chief Financial Officer Needs – Part II Capital and Cash Management. A CFO should understand cash management and budgeting. Planning for capital expenditures, debt repayment, working capital requirements, strategic acquisitions, investments in R&D and, and alternative investments of profits all weave into capital and cash management. A CFO should have experience in forecasting cash sources and uses to help facilitate tight financial controls. Maybe your CFO can prepare a rolling forecast with updated data to improve financial decision making; and track free cash flow (operating cash flow less capital expenditures and other funding, i.e. R&D). Well developed and managed cash flow models build a foundation for monitoring key financial performance and improve cash flow planning. Cash flow models should give the most attention to receivables, inventory and payables to lead to the greatest effectiveness. Armed with this knowledge your CFO can manage receivable for timeliness, assess and optimize peak to trough inventory levels, monitoring duration of cash conversion cycles, while developing key metrics and analytics for monitoring and managing cash flow and financial performance precisely. This gives your team greater accuracy and confidence in financial decision making, for short or long-term goals, e.g. what should be this quarters, or years, incentive plan for the sales team? Financing. A CFO must establish and maintain quality relationships with lending sources, i.e. banks, for existing and future credit facilities. A bank will be increasingly more likely to extend credit, at least with better terms for the umbrella, when the sun is shining. When you negotiate with your lender, your CFO should request the largest line of credit the bank will extend so you’re covered beyond just seasonal inventory…


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Skills Every Chief Financial Officer Needs – Part I

Preface: If you’re hiring your first CFO for your fast developing entrepreneurial momentum, this blogs is to help you appreciate the skills a CFO can and should bring to your business.   Skills Every Chief Financial Officer Needs  The Role of a chief financial officers (CFO), requires an ever increasing need in the bandwidth of financial acumen. Here are a few skillset your CFO should have expertise in, develop expertise in; and skills to look for when hiring a CFO. Strategic Thinking. A CFO should have the skill to help achieve the strategic vision of the business, i.e. a map of the business purpose, objectives, strategy, and the steps necessary to achieve that vision. Creating a vision, plan or strategy on paper is not that difficult. Yet even a realistically achievable one is challenging, when working to implement. You need decisive acumen on your team and with its leader (CFO) to take action, to keep believing in the vision, and work tirelessly towards the achievement of that vision. Your CFO must be committed. With strategic thinking skills, your CFO should have the expertise and experience to evaluate your businesses, e.g. where did you begin, where are you today, and where do you want to be in the future. This will lead to an assessment of strengths, weaknesses, opportunities, and threats. Your CFO needs to think through outcomes, while simultaneously making necessary adjustments in implementing when marketplace warrant, i.e. adapting to new market conditions, innovations, opportunities, and risks. Like Jack Welch says, who lead GE from $4 billion business to nearly $500 billion, “When it comes to strategy, ponder less, and do more”. The key is do more of the strategic. What is strategic? If you don’t want to answer that question, your CFO certainly better have an answer. Typically for entrepreneurs, the same strategy that got you from…


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The Concept of Yield Management Pricing Simplified

Preface: Optimizing sales before product or service opportunities evaporate in the marketplace can lead to a higher contribution margin for your business. Read further to appreciate the importance of systematizing yield management. The Concept of Yield Management Pricing Simplified Yield management pricing is a strategy concept designed for the consumer services sector that accounts for two sales pricing variables– i) evaporation of the product/service opportunity ii) varying levels of demand for the product/service from different customer segments. Yield management originally applied to the hotel rooms and airline seats, but the concept has far greater, and farther reaching applications. Yield management strives to optimize harvest profit yields on products or services every month of the year. The precis of yield management systems is that it works to predict, understand, and react to consumer behaviors to optimize business revenues and profitability. Software models and predictive analytics as well as historic analysis unite to provide pricing options for marketing strategies on consumer products and services. Inputs include historic sales analysis trends and patterns for products or services already supplied projected to future demands, and future event analysis such as holidays or yearly seasons, not to mention market outliers such as unforeseen events, i.e. flash floods. The model then formulates a forecast of total demand for the product or service being analyzed per market segment and variable price points. Whether you have a software model or decide with discretionary or intuitive inputs, yield management seeks the best answer for this question: In our business, how can we optimize revenues during the period (current or future?) Sometimes, simply asking the right question(s) leads to more market capitalization for a business. Yield Management Pricing Examples Consider a retail business that sells scarves, or maybe let’s say winter coats. Let’s assume the garment maker produces all year long. The first opportunity to apply…


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Jack Welch – Winning

Preface: If you judge books by their covers, Jack Welch’s Winning certainly grabs your attention. Testimonials on the back come from none other than Warren Buffett, Bill Gates, Rudy Giuliani, and Tom Brokaw, and other praise comes from Fortune, Business Week, and Financial Times. As the legendary retired CEO of General Electric, Welch has won many friends and admirers in high places. In this latest book, he strives to show why. Winning describes the management wisdom that Welch built up through four and a half decades of work at GE, as he transformed the industrial giant from a sleepy “Old Economy” company with a market capitalization of $4 billion to a dynamic new one worth nearly half a trillion dollars. In Winning, Welch focuses on his actual management techniques. He starts with an overview of cultural values such as candor, differentiation among employees, and inclusion of all voices in decision-making. In the second section he covers issues around one’s own company or organization: the importance of hiring, firing, the people management in between, and a few other juicy topics like crisis management. From there, Welch moves into a discussion of competition, and the external factors that can influence a company’s success: strategy, budgeting, and mergers and acquisitions. Welch takes a more personal turn later with a focus on individual career issues–how to find the right job, get promoted, and deal with a bad boss–and then a final section on what he calls “Tying Up Loose Ends.” Those interested in the human side of great leaders will find this last section especially appealing. In it, Welch answers the most interesting questions that he’s received in the last several years while traveling the globe addressing audiences of executives and business-school students. Perhaps the funniest question in this section comes at the very…


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Marketing Interview with Philip Kotler

Preface: What is a $100 bill worth to you? If you own a business, don’t walk past these 5 10s.   Philip Kotler — “Good companies will meet needs; great companies will create markets,” says Philip Kotler, the world’s pre-eminent marketing thinker. Kotler is S.C. Johnson and Son Distinguished Professor of International Marketing at the J. L. Kellogg Graduate School of Management at Northwestern University. Hailed by Management Centre Europe as “the world’s foremost expert on the strategic practice of marketing,” he has written what is widely recognized as the most authoritative textbook on marketing: Marketing Management: Analysis, Planning, Implementation, and Control. He has also authored other leading books, including Lateral Marketing; Strategic Marketing for Non-Profits; Marketing for Healthcare Organizations; Marketing Professional Services; Marketing From A to Z; The 10 Deadly Marketing Sins; Marketing Moves; Marketing Places; The Marketing of Nations; and Social Marketing. His book, According To Kotler: The World’s Foremost Authority On Marketing Answers Your Questions, focuses on the “four P’s” of marketing: product, price, place, and promotion, as well as addresses trends, challenges, tools, careers, research, strategy development, direct marketing, and new marketing ideas. Kotler released Chaotics: the Business of Managing and Marketing in the Age of Turbulence in 2009.      


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Perception of Your Businesses Variable Costs Can Improve Financial Performance

Preface: Perception of variable costs can infuse greater financial control when pricing products and therefore improve profitability. Read further for the powerful rudiments of the methodology.    Perception of Your Businesses Variable Costs Can Improve Financial Performance Typically most businesses cost production of units with the absorption costing method. Absorption costing simply includes standard manufacturing costs with product costs and inventory. Say for instance you absorb fixed manufacturing overhead (rent, insurance, management, purchasing, and heat) into cost of goods sold. With this method you will have an accurate financial metric of your complete costs; but that is not to say that they are specific expenses to the output of that product. Absorption costing methodologies help you calculate that for every $100 of inventory sold, your gross profit is $20 or say $45 dollars. Then your selling, general and administrative expenses are deducted from the gross profit to obtain net income. Variable costing or say yield based pricing is for the strategic financial manager. Variable costing is just what is says, costing the variable expenses in say production. Variable costs include direct materials applied to manufacturing product, direct labor of shop floor employees involved in production, and variable overhead such as depreciation on equipment or utilities. Variable costing helps you adjust standard costings per product to period costs. Now understand that this can skew your true all-in cost of production that absorption costing includes; but nevertheless variable costing is still often helpful in management decision making. Why? Well, first your fixed costs of manufacturing overhead (rent, insurance, management, purchasing, and heat) will be incurred whether you produce 500 or 1,500 units. Revenue must be obtained to cover those fixed costs to keep a business cash flow positive. Let’s say that a company can produce 100 or 100,000 units  with direct materials cost of $35, direct…


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Contributing Property to a Corporation with Section 351

Preface: Code Section 351 tax-free exchanges permit corporations to receive assets without taxation of the gains on those assets in certain instances. How does it work? Contributing Property to a Corporation with Section 351 A Section 351 tax-free exchange permits a deferral of taxable gain on contributions of property or money to a corporation. With Section 351, no gain or loss is recognized when in compliance with the following tax code parameters i) you receive only stock in the exchange for your property, and ii) you are in control of the corporation immediately following the exchange of property for stock. Section 368(C) enumerates control to be the transferor group has possession of 80% of the total voting power of all classes of stock and at least 80% of the total number of outstanding shares of all other classes of stock in the corporation after the transfer. The stock cannot be nonqualified preferred stock, [stock that the holder has the right to require the issuer to redeem or buy back the stock]. For example, if Ron incorporates his developing woodworking business and contributes manufacturing equipment and delivery vehicles with a fair market of $450,000 and an adjusted basis of $100,000 to his new corporation Woodcrafters, Inc., Section 351 permits the $350,000 of taxable gain on the assets contributed to Woodcrafters, Inc. to be deferred. Along with the Section 351 tax-free exchange, a statement must attached to both the transferors tax return and the corporations tax return that includes all pertinent facts and circumstances of the exchange or property for stock. Your tax accountant prepares those statements. When contributing property to a corporation two valuation concerns arise; i) the value assigned to the stock received, and ii) the value assigned to the property assigned or transferred into the corporation. First the received stock…