Preface: Asset protection strategies are advised for any level of asset holder. Compartmentalizing risks and segregating asset parcels or preparing to contain and prevent financial fires is worth the effort, but need the strategy implemented ahead of the time to be “judgment proof”. Reverence includes good stewardship, and that includes healthy respect for risks that are best unmeasured!    Asset Protection Strategies Awareness. Asset protection planning and strategy is best managed with the trusted eye of an experienced attorney specializing in asset protection. In recent years, this topic has become increasingly important to business owners, e.g. entrepreneurs avoiding risks from third-party creditors, high network individuals concerned with risks that are not “judgment proof” and individuals who simply want to sleep well at night. While a CPA can advise on the value of asset protection planning, attorneys specializing in asset protection should prepare and implement the strategy. This blog is written to bring an awareness of the importance to reduce financial risks with asset protection. What are effective strategies to protect assets? Standard strategies include retirement plans including ERISAs or in some state an IRA, third party trusts for family members, domestic asset protection trust, family limited partnerships and capital restructuring. Capital restructuring includes equity distributions, holding companies, family secured loans, and multiple LLC structures. Asset protection strategies can be as simple as distributing excess cash from your business before any risks occur, i.e. asset distribution. If you have excess cash and high AAA in your S-Corporation, the benefits of cash distributions to lower asset exposure inside the business is always advisable. Any entrepreneur who has significant debt risk, i.e. bank mortgages, should take steps with asset protection. Does your wife really want your dinner plates applied to bank collateral? Paying an attorney to modify loan agreements before signing is always advised. A few hundred of legal fees upfront…

Preface: Proper accounting for customized software costs is becoming increasingly relevant to entrepreneurs. This blog is make the complexity understandable for business owners. Accounting for Investments in Software Computer software is becoming increasingly relevant to more smaller businesses and entrepreneurial financial management teams. From CRM modules to customized accounting systems and automated inventory controls, trends with reliance on customized business and industry software continue to climb. For chief financial officers, this requires appropriate knowledge of accounting for the costs incurred on the purchase and investment in licenses and programming fees from vendors; and for IT programmers, questions on revenue recognition. For programmers involved in method development, or customized software programming on computer systems that require significant production, modification, or customization, the accounting for revenue should be on a contract basis; either percentage of completion or complete contract. Typically, this is tracking of estimated hours on programming to hours incurred, and the measure of the percentage of projection completion is accrued to revenue on current project billings. For companies investing in internal-use software, the decision to capitalize or expense depends mostly on the nature of the cost incurred, and more specifically on the state of the incurred costs, i.e. preliminary project, application development, or post-implementation/operation state. When upgrading software, external costs in the preliminary project states or post-implementation should be expensed, while application development costs should be capitalized. When capitalizing costs for internal use software, the types of expenses eligible are say fees paid to third-party developers, costs paid to obtain the third-party code, and travel expenses associated with the software development, along with payroll and employee benefits for time devoted to the internal-use software. In addition, this includes any interest expense to finance the associated above costs. General and administrative expenses should be expensed; say rent, utilities, and office supplies. Now let’s…

  Construction Equipment:  To Buy, To Lease, To Rent? Preface: John Deere explains the merits of buying, leasing, or renting for construction businesses.  

Preface: If you plan to add a vehicle(s) to your business, discuss with your tax accountant the cost/benefit options of purchase versus lease, and the expense method of standard mileage or actual expense.   Business Vehicles _Lease, _Buy   Deciding whether to buy a vehicle versus leasing is not always easy. The main advantages of leasing are lower monthly payments than a loan, and less cash paid upfront to provide transportation for you or your employees. A purchase provides depreciation expense if actual vehicle expense deductions are employed; a lease payment is deductible as an expense too. For instance, if you lease a vehicle you can deduct the monthly lease expense plus fuel, repairs and maintenance.   So why lease when you can afford to buy? If you lease, you can often obtain more car for the same monthly payment as a purchase. This is the main reason luxury vehicles are leased rather than purchased. When the lease term is finished you can obtain a new vehicle. Warranties often last the life of a lease and increase the ease of vehicle ownership, and some leases are maintenance free too. Disadvantages of leasing – you pay for door ding’s and spills at the end of the lease – deductions from the security deposit which can be thousands in addition to the monthly payments. If you want to terminate a lease early there are additional costs associated with such, and if you lease you will always have vehicle payments to make without gaining equity. Gap insurance, covering the cost of the lease if the vehicle is totaled, is most often a part of the lease. If you purchase a new vehicle every two or three years, or want to minimize monthly payments, leasing may be for you. Leasing also has a lower…

Preface: Budgeting is the most often utilized tool for cost controls. Budgetary controls encourage financial discipline and that discipline promotes a strong financial statement. Creating a budget, (say incremental, or zero based) and controlling a budget can be tedious or easy given your accounting software features and familiarity with financial modeling. Value costs; every dollar of revenue your business earns is a cost to someone else.   Budgeting and Cost Management   A budget is a financial statement forecast of expenditures or income for a set period of time that has been apportioned to specific accounts. A budget provides key metrics to achieve a strategic plan. It helps coordinate i) the activities of managers ii) furthers your toolbox of financial responsibility iii) communicates important financial information iv) motivates employees by setting clear goals v) promotes managers to think about and plan for the future vi) confers criteria for managers to measure performance vii) promotes income and expense monitoring.   Having the appropriate tools incorporated in your business for financial management is imperative. Budgets are one of those tools you should incorporate. When beginning to plan your budget, keep in mind the value of reliable financial information and the importance of financial controls.   Incremental Budgeting   There are two main methods of budgeting. Incremental budgeting and zero-based budgeting. The incremental method bases this year’s budget on last year’s income and expense account balances with a ratio of arbitrary or calculated increases and/or decreases in individual accounts. If you use the incremental method, which is easier than zero-based budgeting, examine carefully your prior year accounts for variances and be realistic, because budgeting is forecasting your future revenues and expenses. While fixed expenses are easy to budget; revenues are more complex and should include an average of prior years to be more realistic.  When drawing your budget, assess…

Preface: The top priority of any well managed business must be the balance of profitability on sales revenue. Does the sales and marketing plan to increase profitability make sense, i.e. will it secure and further future success and revenue profitability, or is it a revenue spangle?   Business Profitability and $$ Kernels!   Most managers are familiar with the profit kernels that lead to increased business profitability 1) reduce expenses 2) increase sales volume 3) raise prices 4) increase capital leverage 5) increase product stocks 6) increase distribution radius with multiple locations or e-commerce and 7) adding new products or services.   As a manager you may think frequently about new profit kernels that increase efficiency and therefore profitability for your business. You can systematize your assessment of financial performance with ratio’s and analytical contrasting as you review financial statement periods, but what you should really want to do is gain a realistic familiarity with how you can cultivate profit kernels to manage a consistently profitable business and increase retained earnings along with valuation.   Increasing sales volume is often thought of as the easiest way to increasing profitability; but it may not be easy, and it is not effortless. Simply, sales does not always equal profit. If you increase sales, you may need to increase capital requirements, along with forecasted increases in overhead, selling costs and general and administrative costs. If you need to employ additional sales reps to produce additional sales you must carefully consider the cost/benefit.   Profit Kernels   Organic profit kernels, e.g. incremental expansion from the reinvesting of operating profits to build your business, increases your business’s long-term financial balance and should be preferred to hybrid profit kernels with significant risk, e.g. building your business with credit leverage. Don’t venture your business’s future security, for the possibility…

Preface: The ultimate goal in pricing is to make price second to value. Value should lead what your business brings to the marketplace. Whether shopping atmosphere, product quality, or perceived excellence of service, incorporate pricing heuristics.   Heuristics on Pricing Strategies   Sales revenue is a key element to your business; and the most important decision you will make about your product(s) or service(s) is price. Sales govern business; price governs profit. Pricing power should never be neglected. Price variations, even small price variations can increase or decrease your business profitability. These price variations can be significant, maybe 50%. For instance, if your business is manufacturing carved book-ends, wages may be a significant cost of goods sold and an increase in price of five percent may increase profits significantly.  If your total in cost profit is 20% of sales, raising prices five percent would increase profit approximately 25%. On sales of $900,000 per annum, income would increase profit $45,000 in this scenario.   When you price your product, incorporate pricing heuristics. Understand who your customer is, and what a customer “will” pay for your product or service, and secondly, what your customer “wants” to pay.   Cost-based pricing, the default pricing mechanism, uses cost accounting to calculate fixed and variable costs, such as a 20% markup on purchase is simply your product price. This method overlooks the willingness to pay on behalf of the customer, and competitive pricing environments. If you can buy products and sell at a 20% markup for an average of 10% net income after operating expenses, selling expenses, and general and administrative expenses, the only question you need ask yourself is what is your market galaxy. Most often, it is not that easy.   Competition-based pricing contains parameters on anticipated and observed current or future competitive…

Preface: What Busy Entrepreneurs Do Not Have Time For?  Rook Card Game: by Hasbro Beware the Rook as you trick and trump your way to victory! This brain-teasing Rook card game is a fast-moving competition to bid and name tricks quicker than the competition. You and your partner have to work together to beat your opponents to the tricks. But just when you think you’ve got it all together, the wild Rook can land and screw up all your plans! Start with the Beginner rules to get the hang of it, then switch to regular rules when you’re ready to play for keeps. No matter how you play, the wild Rook makes the game even wilder! Rook and all related characters are trademarks of Hasbro. What do (or should) busy entrepreneurs have time for? Guys like “Amos” would be best suited reading books like this instead….. Letters to a Young Farmer: On Food, Farming, and Our Future Letters to a Young Farmer is for everyone who appreciates good food grown with respect for the earth, people, animals, and community. Three dozen esteemed writers, farmers, chefs, activists, and visionaries address the highs and lows of farming life—as well as larger questions of how our food is produced and consumed.      

  Preface: Gret Glyer, a graduate of Grove City College who lives in Malawi, just launched an app that will knock your socks off: help fund worthy projects of all sizes all over the world, and get receive immediate notification and visual evidence of your impact when the project is complete. What is this App? What are the financials projections, and global implications? Who knows?          

  Preface:  John Hofmeister is a key member of the United States Energy Security Council, a bipartisan group which includes former Secretary of State George P. Shultz and two former secretaries of defense, William J. Perry and Harold Brown. Upon retirement from Shell Oil Company in 2008, Hofmeister founded and heads the not-for-profit (501(c)(3) nation-wide membership association, Citizens for Affordable Energy. This Washington, D.C.-registered, public policy education firm promotes sound U.S. energy security solutions for the nation, including a range of affordable energy supplies, efficiency improvements, essential infrastructure, sustainable environmental policies and public education on energy issues. As Shell president, Hofmeister launched an extensive outreach program, unprecedented in the energy industry, to discuss critical global energy challenges. The program included an 18 month, 50-city engagement program across the country during which he led 250 other Shell leaders to meet with more than 15,000 business, community and civic leaders, policymakers, and academics to discuss what must be done to ensure affordable, available energy for the future. A business leader who has participated in the inner workings of multiple industries for over 35 years, Hofmeister also has held executive leadership positions in General Electric, and Nortel. Hofmeister serves as the chairman of the National Urban League and is a member of the U.S. Department of Energy’s Hydrogen and Fuel Cell Technical Advisory Committee. He serves as non-executive director of the Hunting PLC, London, UK, CAMAC Energy, Inc., Sodexo North America Business Advisory Board, advisor to Liberty Power of Fort Lauderdale, Fl, the nation’s largest minority owned power company. He also serves on the boards of the National Energy Security Council, Washington, D.C.; the Foreign Policy Association, New York; Strategic Partners, LLC; the Gas Technology Institute and the Center for Houston’s Future. Hofmeister is a fellow of the National Academy of Human Resources….