Donald Sauder, CPA

Preface: This blog is for entrepreneurs who are hereby advised to apply appropriate tax planning for their businesses activities to optimize the tax benefits and nuances of the new Section 199A tax laws, beginning with the 2018 tax year. Early Harvest Planning on the Section 199A Laws for Business Tax (Segment I) Tax Implications and Planning Features with the Qualified Business Income Deductions Minted the Tax Cuts and Jobs Act, the newest business tax legislation relevant to the 2018 tax year, appears to have unique tax characteristics that are intentionally vague for taxpayers with regards to certain IRS code section interpretations. The summarized IRS tax code relevantly exemplified specifically to this blog are for the Section 199A or the Qualified Business Income Deduction. To be confidentially advised towards IRS audit proof tax planning decisions for the 2018 tax year, it is imperative to understand how the new tax law of Section 199A are applicable to certain qualifying entrepreneurial activities and corresponding tax positions e.g. tax laws for service and non-service businesses, exact definitions of qualified business income (QBI) and individual tax filing threshold limits on Section 199A. The new Section 199A tax code permits individual tax filers to deduct as much as 20% of qualifying 199A income for tax filing purposes beginning with the 2018 tax year. The qualifying Section 199A income includes qualified business income (QBI) from say partnerships, sole proprietorships, or S-Corporation. As with most new tax laws, Section 199A section has numerous tax planning nuances that we will outline in the following paragraphs. A Section 199A Outline So, what is Section 199A? It is a tax deduction akin to the prior Domestic Production Activity Deduction under Section 199. With the unique modifications to Section 199A (Section 199 called DPAD in prior years, was capped at 9% of…

Preface: “Alice: How long is forever? White Rabbit: Sometimes, just one second.” “Alice: Would you tell me, please, which way I ought to go from here? The Cheshire Cat: That depends a good deal on where you want to get to. Alice: I don’t much care where. The Cheshire Cat: Then it doesn’t much matter which way you go. Alice: …So long as I get somewhere. The Cheshire Cat: Oh, you’re sure to do that, if only you walk long enough.” ― Lewis Carroll, Alice in Wonderland      

Preface: Well Done Donald! Listen to Donald G. Soderquist, retired Chief Operating Officer of Walmart, talk about the undeniable importance of values.  

Preface: Storage Units — one in eleven of every US households rents a storage unit, and  the US has 21 sq. ft. of storage unit space for every household. There are enough storage unit sq. ft. in the US for every person in the US to easy stand in side a unit at the same time. Statistics — 18% use storage units for 3 to 6 months, 18% use a unit for 7 to 12 months, and 22% use a storage unit for 1 to 2 years, and 30% rent a storage unit for more than 2 years. The average unit rental cost is $125 per month. Larger units are say $250 per month. Write your business plan on this. The cost of storage can easily exceed replacement costs. Your children won’t want the stuff according to the statistics. 65% have a garage. There is not much conversation about this trend at this time, but the truth is this monthly cost of $125 for one in eleven household has serious economic implications. What is the pricing power with this much excess stuff on the market? If you think this trend will continue, then if you’re an entrepreneur “go and do likewise”…. after watchin this…..  

Preface: Americans have a long tradition of being dreamers and forward-thinking individuals willing to take big risks by launching their own businesses. Allon Lefever is one of those risk-takers-an entrepreneur in heart as well as in practice. Having help start twenty-two businesses along with thirty-five years of experience in the business world, Lefever has experience and the passion to show readers how to transform their entrepreneurial idea into a successful business. It’s Lefever’s firm belief that there’s never been a better time to become an entrepreneur because of the Internet, which opens up tremendous opportunities for those willing to act on their dreams-opportunities that weren’t available just a few years ago or even a few months ago. Launching the Entrepreneur Ship will show you how you can set sail with your entrepreneurial idea-and become a success some day! Allon Lefever is president of Lefever Associates, a consulting firm based in Lancaster, Pennsylvania. He currently performs executive and entrepreneurship coaching with a specialty in mergers and acquisition and strategic planning. He is also president of A Better Hospitality Company, an owner and operator of hotels. After graduating magna cum laude from Millersville State College and earning a Master’s in Economics from Penn State University, he started his corporate career in 1980 with Victor F. Weaver, Inc. He later joined High Industries, where he served as senior manager for a number of years. While he was at High Industries, his son, Rod, suggested that they start one of the first Internet Service Providers (ISP) in southeast Pennsylvania in 1993. Getting in on the ground floor in the Internet world eventually led to merging with other regional ISPs that were eventually purchased by EarthLink in 2001.   If you’re considering entrepreneurship, Read: Launching the Entrepreneur Ship. “Allon charts the course for anyone seeking…

Working Capital Tools for Successful Business Performance (Segment V) Looking Towards the Future Working capital management is imperative to successful entrepreneurship because agreement on its relevance is a real deal when transitioning business ownership. Working capital requirements are often a key valuation feature in business exits. Let’s look at some relevant marketplace data from Keystone Business Transitions for confirmation: You are far from the only fish in the sea. Estimates indicate that there are approximately 7.5 million business owners in the United States, and 65% of survey respondents planned to leave their company within a decade or less. That could result in a glut of companies on the market, driving down valuations and giving new leverage to buyers. If you are a Baby Boomer (born between 1946 and 1964) the generation following you is not nearly as big so expect far more sellers than buyers in the marketplace. This too, adds to the glut. Even during boom times less than half of the owners who tried to sell their business actually were able to sell. Unless your company is superior to its competitors because there’s something about it that a buyer can use to make more money than you do (or other businesses in your industry do) a rising tide is going to lift you only as much as it lifts that glut of competitors. If three out of every five businesses plan to sell in the decade, the a superior business should have adequate working capital levels to gain an edge in the increasingly competitive transaction marketplace. If your business lacks adequate working capital, at best, your business will only confabulate with regards to exit planning because it will not have the cash available to appropriately prepare qualified successors for ownership, e.g. adding and developing partnership/successor trainee(s), or pay…

Preface: Prevention of backsliding in already optimized working capital levels, and developing deeper and more conservative convictions on managing working capital to encourage the life of a more successful financial business environment, are truly inherent skills associated with decades-long successful entrepreneurship. Working Capital Tools for Successful Business Performance (Segment IV) Working capital management has two non-financial centric benefits. 1) To prevent backsliding in already optimized working capital levels, and 2) Developing deeper and more conservative convictions on managing working capital to encourage the life of a more successful financial business environment. The discredit of the merits of working capital management is often par for business, until a shortage results in acute financial pains. In these scenarios, an awareness of the appropriate steps to take to manage and alleviate that financial pain, work to restore the financial vibrancy of the business. While those steps are not the subject of this article, at those time, few financial advisors measure working capital as a key financial metric. While that is not necessarily a mistake entirely, from an accounting standpoint, meticulous financial management and assessment of historic data, e.g. working capital measurement, will highlight changes, and bold concerns with organizational communication and cohesiveness, customer service, and marketplace conditions (i.e. customer inventory purchasing characteristics.) These are common quantifiable concerns that lead and precede extensive working capital atrophy. Abrupt changes in working capital management such as extending payment terms on vendors from 15 to 30 says to improve the cash conversion cycle, can result in increased prices on purchases, and changes in vendor terms. Reducing inventory levels can lead to forfeited sales revenue, and customer atrophy. With appropriate data, chief financial officers can support these technical parameters to manage onboard assets, and unboard ancillary cash requirements. It is of note to ensure that the data gathered…

Preface: Don’t tell me what you value, show me your budget, and I’ll tell you what you value.” –Joe Biden. Working Capital Tools for Successful Business Performance (Segment III) Working Capital Measurements     Working capital is an easy calculation (current assets minus current liabilities equals working capital). Working capital measures the operational liquidity level of a business. Currents assets are primarily the cash and equivalents accounts, accounts receivable, vendor prepayments, and inventory. Current liabilities are primarily accounts payable, credit cards, line of credit, tax liabilities, accrued expenses, customer prepayments and deposits, and current portions of debt. To accurately measure working capital, it is necessary to have accurate financials with appropriate accountant oversight to classify accurately current and noncurrent assets and liabilities. The current ratio applies the same financial numbers as working capital, yet instead of subtracting current liabilities from current assets, the current ratio divides current assets by current liabilities. Typically, a current ratio should be greater than two and likely 2.5, to be solidly established from an analytical measurement metric. Working capital measurement and management are synonymous; an analytical approach to monitor a business’ capacity to continue operations with sufficient cash flows and to pay operating expenses and satisfy short-term debt obligations. Sauder and Stoltzfus, an entrepreneurs CPA firm, has developed a working capital grading tool to help clients measure optimal working capital levels, i.e. how much is enough when discussing working capital? Let’s call it the working capital grader. Working capital seems easy enough to calculate. You look at your financial statements and subtract current liabilities from current assets. If you should have the financial accuracy to calculate the balance, the numbers independently, do not provide much analytical guidance. Tracking the balance from consecutive period to period will provide a data map, but you need to know, “Do you…

Preface: The cash conversion cycle to accrual method accounting is like photosynthesis, its happens every day but only few take the time to consider the importance of the process and the intricate implications. If your business is managed starboard, you can appreciate that reality that calm weather is more agreeable, i.e. satisfactory levels of working capital lead calm business management. Working Capital Tools for Successful Business Performance Liquidity measurements in an accounting equation calculate the ability of a business to pay and satisfy current period cash uses with assets that are easily convertible into cash, e.g. current assets. Liquidity measurements speak to the traction of liquidity, i.e. pace of collections of account receivables, inventory turns and inertia of liquidity, paying accounts payable or term loans to rapidly, or fluctuations in line of credit from lack of operating cash. Strategy-Business.com journalist Matt Palmquist wrote an interesting article on working capital balances vs. shareholder value; excerpt– “… the importance that companies attach to having plenty of working capital on hand, the firms in the study put an average of more than 27 percent of their total assets into net operating capital—a rather substantial amount. But the stock market’s reaction to the building up of strategic reserves was somewhat less substantial, the authors found. For the average firm, every additional dollar converted into net operating capital was valued by shareholders at only 52 cents. Not only is this number obviously much less than the actual value of the amount being invested, but it’s also far below the US$1.49 valuation that shareholders place on any additional dollar held in cash or liquid securities”. Certainly research supports that working capital doesn’t leverage the increase or likelihood of additional business value, but it is like an insurance policy, if you don’t need it, you don’t need…

Preface: Monitoring your business from an analytical vantage point, results in greater awareness of financial performance trends. The larger the business venture, the more financial expertise required. To quote Kevin Harrington, “People must be realistic in evaluating their business.” Realistic, in the sense of working capital tools, whether you agree or disagree, seems to be that absent working capital there is zero liquidity. Working Capital Tools for Successful Business Performance Working capital and sparkling water have shared a value. Too few realize how precious it truly is. Effective management of working capital and the effective management of operating capital and the cash flow cycle is always required for successful business performance. Adequate working capital is your businesses sparkling well. Many entrepreneurs that habitually worry about managing their business ventures while applying skip planing financial metrics, would be advised to immediately develop effective working capital systems to guarantee long-term business success. That latitude of working capital techniques can vary from business to business, and entrepreneur to entrepreneur; and the forward supervision of entrepreneurial working capital for a venture is a continuous process. The vacation test: If you can vacation with family and not worry about cash flows in your business, then you’re likely managed working capital well. Inadequate working capital usually results in a unwieldly web of financials perplexities in business. Those webs can range from shifts in vendor’s trust and credit ratings or flooded employee morale, to forfeited profit opportunity. Vendor credit trust is often essential and vital for a consistent supply of products or services to conduct vibrant daily business operations, e.g. if you lose credit with vendors, or your credit rating is impacted negatively, it is not an easy task to get the wagon backup to speed. Should employee morale be flooded from delayed payroll checks, a high-tension…