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2003
Tax Law Gives Small Businesses and Families a Big
Boost |
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Our mission is to provide information and strategies
to business owners and managers for improvement
in the effectiveness of its business management
so that key objectives can be realized.
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Ted Hofmann
- Principal/Senior Consultant
John Morre - Principal/Senior Consultant
Linda Panichelli - Principal/Senior Tax
Consultant
CFO Plus, LLC
1450 Grant Avenue, Suite 102
Novato, CA 94945-3142 |
Home Office |
: |
415-898-7879 |
Toll
Free |
: |
866-CFO-PLUS
or 866-236-7587 |
Fax |
: |
415-456-9382 |
Email |
: |
thofmann@cfoplus.net
jmorre@cfoplus.net
lpanichelli@cfoplus.net
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Website |
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www.cfoplus.net
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You
may have heard about recent changes in the tax
law. And, unlike previous tax law changes, the
2003 changes offer something for everyone. The
new tax package includes a mix of tax cuts and
credits, instant rebates and relief provisions
that may surprise you. Signed into law on May
28, 2003, by President Bush, the “Jobs and Growth
Tax Relief Reconciliation Act of 2003” calls for
the third largest tax reduction in United States
history. As such, this law provides substantial
tax savings for both businesses and individuals.
No
new taxes – try out the new tax cuts instead.
Believe it or not, the new law collapses time
for tax cuts originally scheduled to occur in
phases until 2006. If you were in the 38.6% tax
bracket in 2002, for example, your 2003 rate will
be only 35%. On the other end of the scale, income
ceilings for the 10% and 15% tax brackets have
been raised. In all, most Americans have gained
an increase in their take-home pay. Small businesses,
however, may be getting the best deal of all.
A
big boost for small business. The new
tax law was designed, in large part, to stimulate
small business growth. To this end, the Section
179 Expense Deduction was liberally increased
from $25,000 to $100,000 for listed business property
purchased after May 5, 2003. In other words, small
businesses can now write off $100,000 in equipment
expenses. Qualifying business property generally
includes, but is not limited to automobiles, pickup
trucks, photographic and phonographic equipment,
communications equipment, computers and peripheral
equipment, and office furniture and fixtures.
In addition to this, business owners may take
50% “bonus depreciation” in the first year for
qualifying equipment. This is up from 30%.
Both
Section 179 deductions and the bonus depreciation
provision may be combined to generate significant
tax savings for most any small business. These
added allowances, however, will expire over the
next two or three years unless further action
is taken by Congress. So, it may well be in the
best interest of your business to strategize accordingly
in order to take full advantage of these incentives
while they are available. Section 179 applies
to both new and used assets while the bonus depreciation
applies only to new assets, so you may want to
explore the possibility of expensing purchases
of used assets while depreciating new assets.
In
addition to reduced marginal top tax rates, small
businesses may also benefit from the substantial
reduction of the top tax rates for dividends and
capital gains. Beginning January 1, 2003, these
top rates were reduced from 38.6% to 15% on dividends
and from 20% to 15% on long term capital gains.
On an individual basis, it will prove beneficial
to most stakeholders of dividend paying corporations,
as well as investors, who have substantial, locked-in
capital gains. It is important to note, however,
that dividends and capital gains will now be treated
equally. Previously, dividends were taxed as regular
income and portions of capital gains were deductible.
As a result, some investors may wish to adjust
their strategies to take advantage of the new
provisions.
On
the home front. In addition to the previously
mentioned tax cuts, the new tax law may help some
couples book their second honeymoon – at least
those couples filing jointly. The act increases
the standard deduction for married couples to
double the amount for those filing single. If
this is not enough, the Child Tax Credit will
increase from $600 to $1000 per qualifying child
under the age of 17. Remember, a tax credit reduces
your tax dollar for dollar where a deduction reduces
the amount of your income subject to taxes. This
means you may be eligible for a rebate of up to
$400 per child. These two features of the new
tax law are also scheduled to expire, or revert
to a lesser amount, at the end of next year, but
should provide significant savings during 2003
and 2004.
The
“Jobs and Growth Tax Relief Reconciliation Act
of 2003” has something for almost everyone. It
will affect individuals differently depending
on their income level and family situation. The
new tax law gives a big boost to small business
by encouraging spending. To develop a sound strategy
to take advantage of all the benefits the new
tax law has for you, give us a call today.
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Our mission is to provide information and strategies
to business owners and managers for improvement
in the effectiveness of its business management
so that key objectives can be realized.
|
|
Ted Hofmann
- Principal/Senior Consultant
John Morre - Principal/Senior Consultant
Linda Panichelli - Principal/Senior Tax
Consultant
CFO Plus, LLC
1450 Grant Avenue, Suite 102
Novato, CA 94945-3142 |
Home Office |
: |
415-898-7879 |
Toll
Free |
: |
866-CFO-PLUS
or 866-236-7587 |
Fax |
: |
415-456-9382 |
Email |
: |
thofmann@cfoplus.net
jmorre@cfoplus.net
lpanichelli@cfoplus.net
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Website |
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www.cfoplus.net
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New
Executive Perks On the Rise |
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You have inevitably heard of them by name.
They were legends in their own time – the
golden barons of corporate America. Their
names are Kenneth Lay, Bernard Ebbers and
Jack Welch – the former CEO’s of Enron, WorldCom,
and General Electric respectively. These three
sovereigns of Wall Street were so highly regarded
by their respective enterprises that they
seemed irreplaceable. So, what exactly could
the stakeholders do to keep these golden barons
in place? Offer them more gold, of course!
How about a pair of golden handcuffs?
Wondering
what golden handcuffs are? It will not surprise
you to learn that the term “golden handcuffs”
is yet another buzz word from corporate America.
It refers to supplementary executive perks
that are structured to attract and keep top
performers and other key personnel. Stock
options, deferred compensation and low interest
loans are examples of some of the perks that
have served as golden handcuffs. However,
these perks are only effective as golden handcuffs
if they contain forfeiture provisions that
require continued employment and/or include
non-compete agreements.
How
were golden handcuffs applied to the three
golden barons? Kenneth Lay was clandestinely
awarded a 7.5 million dollar line of credit
that could be repaid with stock that Enron
had given him. He built a ‘house-of-cards’
and it imploded! Bernard Ebbers mysteriously
received more than $400 million in personal
loans, with very soft repayment terms. WorldCom
has since filed for the world’s largest bankruptcy!
General Electric secretly spent $15 million
on a penthouse for Jack Welch. He had to give
it back! After these incidents, and others,
the Sarbanes-Oxley Act of 2002 was introduced.
The
Sarbanes-Oxley Act of 2002 was enacted following
several corporate scandals similar to the
three portrayed above. This law makes it incumbent
on corporate America to establish a system
of corporate governance and internal controls
based on the highest ethical principles and
standards. Among its many provisions, it specifically
requires detailed disclosures of off-balance-sheet
transactions and bans company loans to officers
and directors. This law, in effect, put a
stop to a growing corporate trend of ever-richer
executive benefits packages whose costs were
not disclosed to shareholders. Corporate America
still uses the golden handcuff principle,
with full shareholder disclosure, to attract
and keep top performers and other key personnel.
Most
companies now take a proactive approach in
the use of golden handcuffs to retain their
most talented personnel. The practice of offering
cash bonuses or similar perks based on meeting
certain performance standards can be effective;
however, once these awards are granted, they
have no lasting value when it comes to ensuring
the individual’s continued performance, loyalty
and/or stability. The golden handcuff approach
provides added incentive for the individual
to stick-around. These perks may come in the
form of a retention bonus that is cleverly
coupled with a repayment and non-compete agreement.
If the individual leaves, the company then
has the right to partial or even full repayment.
In some cases, retention bonuses are used
to provide the employee with cash for a home
mortgage down payment. These agreements usually
provide the company with the right to place
lien on the individual’s personal residence.
Probably the most effective golden handcuffs
are those that provide the individual with
some form of equity in the business.
“Equity
is the bonus that keeps on giving,” according
to Paul Lemberg of the Stratamax Research
Institute. “The value of equity compensation
is likely to increase over time, often considerably.
Equity acknowledges your employee’s past contribution,
but the real payoff is for work still to be
done – and your people have to stay around
to reap the rewards. In real terms, the current
cost of equity compensation is cheap, especially
relative to the loyalty it can purchase. Plus,
since no cash changes hands at the time of
the equity bonus, you can use it as a reward
even if your company is cash-strapped.” Equity
compensation might include outright stock
grants, non-qualified stock options or phantom
stock. Such equity grants will not be effective
as golden handcuffs unless they are coupled
with a defined vesting period.
In
today’s economy, successful companies need
to offer ample perks and benefits to attract
and retain top-notch executives and employees.
These perks need to be tied to the company’s
future performance in order to assure that
key personnel will stay-the-course to reap
the long term payback. Benefits tied to equity
in the company appear to be most effective
golden handcuffs available. To learn more
about establishing employee incentives and
managing peak performance, call us today.
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Our mission is to provide information and strategies
to business owners and managers for improvement
in the effectiveness of its business management
so that key objectives can be realized.
|
|
Ted Hofmann
- Principal/Senior Consultant
John Morre - Principal/Senior Consultant
Linda Panichelli - Principal/Senior Tax Consultant
CFO Plus, LLC
1450 Grant Avenue, Suite 102
Novato, CA 94945-3142 |
Home Office |
: |
415-898-7879 |
Toll
Free |
: |
866-CFO-PLUS
or 866-236-7587 |
Fax |
: |
415-456-9382 |
Email |
: |
thofmann@cfoplus.net
jmorre@cfoplus.net
lpanichelli@cfoplus.net
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Website |
: |
www.cfoplus.net
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A
Key Ingredient for Business Success
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Cash
flow has often been characterized as the “life-blood”
of any business. The reason is quite simple.
Any business, no matter how large or small,
that fails to properly manage cash flow is doomed
for failure. By simple definition, cash flow
is the number of dollars collected verses the
number of dollars paid out over a given time
period. A negative cash flow means more dollars
were paid out than were taken in. If this continues
over a long period of time, the business may
find itself in bankruptcy. Many profitable businesses,
including some with enviable sales growth rates,
have found themselves on the brink of disaster
because cash flow was not being properly managed.
Many methods have been used to manage cash flow.
Three methods, in particular, have condensed
the cash conversion cycle in many businesses,
or the time required for a dollar spent to be
returned. These three methods include placing
controls on spending, accelerating receipts
and maintaining lean inventories.
To gain a better understanding of cash flow
management, it is important to first understand
the difference between cash flow and profitability.
Cash flow is not only concerned with the movement
of dollars in and out of a business, but more
importantly, the timing of that movement. Profitability,
on the other hand, is a measure of the surplus
(or shortage) of dollars remaining after all
obligations have been met for the reporting
period. It is possible, and not uncommon, for
a profitable business to experience a critical
short-term cash flow deficiency.
Suppose a business purchases
the raw materials in January to manufacture
a product that will be sold during the following
Christmas season. In this case, a significant
dollar outflow might occur in the first quarter
with little or no dollar inflow expected until
the fourth quarter. If the business does not
adequately plan around its seasonal sales
cycle, the routine expenses that occur during
the second and third quarters could create
the need to borrow operating capital just
to survive until Christmas sales begin. Borrowed
capital then creates additional interest expense
that ultimately serves to reduce profitability.
This cycle might be repeated year after year,
exposing the business to a declining profit
margin and eventual bankruptcy. To avoid this
trap, a business must forecast, budget, analyze
and proactively manage its cash flow on an
ongoing basis.
Spending Controls. Cash conservation must
start with the spending habits of the business.
Businesses generally require cash for wages,
equipment, raw materials, office furnishings
and fixtures, rent, taxes, utilities and more.
Many of these costs are fixed and little can
be done to reduce them. Discretionary items,
on the other hand, may provide a fertile field
for conserving cash. Fancy offices and luxury
automobiles may say something about management’s
style, but do they help the business stay
afloat during hard times? How about new equipment?
Leasing new equipment may make more sense
than purchasing it. Lease payments not only
conserve cash on-hand, but they are tax deductible.
And, what about outsourcing? It may be more
efficient to outsource certain jobs than supporting
the overhead associated with a full time employee.
Accounts payable could be
the most important area of all for proactively
managing cash conservation. Discounts for
prompt payment can be rewarding. For example,
a 2% discount for paying a bill within ten
days may be better than earning double digit
interest on the balance due for the next month.
It is also important to negotiate better purchase
terms. Many suppliers will agree to defer
billing or extend no-interest loans to make
the sale. Controlled spending is only a part
of managing cash flow, accelerating cash receipts
is another.
Accelerating Cash Receipts.
Accounts receivable represents sales that
have not been converted into cash. The longer
it takes to collect these amounts, the more
detrimental the effect on cash flow. Early
payment discounts may expedite the receipt
of cash, but at what cost? The simplest way
to improve cash flow would be to require cash-on-delivery.
This requirement also has a downside. Some
companies facing this dilemma have reverted
to selling accounts receivable to a third-party
on a discounted basis. This is known in financial
circles as “factoring.” Again, this is not
without cost. The answer to managing this
facet of the cash flow equation may best be
resolved by the establishment of a corporate
credit policy that serves as a guide for extending
customer credit. The credit policy essentially
sets the terms and conditions based on the
individual customer’s credit history. The
final piece of the equation for cash flow
management lies in inventory control.
Inventory Controls. Inventory
describes the extra materials and/or products
that are on-hand for future use. Excessive
inventories of raw materials or finished products
can be detrimental when it comes to managing
cash flow. The dollars tied up in this inventory
are not capable of earning interest and they
are not available for other business use.
So, determining the minimum acceptable inventory
level and maintaining it, is an absolute must
for responsible cash flow management. With
the advent of computerized technology and
automated warehousing, many progressive businesses
have adopted an inventory control system known
as “just-in-time inventory.” This system basically
coordinates the upstream logistics of moving
the required materials or products to the
right place at the right time, just as they
are needed. Needless to say, cash flow management
has a real friend in “just-in-time inventory.”
Cash Conversion Cycle. The business of managing
cash flow may be condensed into a fairly simple
empirical equation known as the “cash conversion
cycle” or CCC for short. Using the metrics
of days, the cash conversion cycle equation
may be stated as follows:
CCC days = sales outstanding
days + sales in inventory days – payables
outstanding days
This equation allows a business
to actually grade itself, with a real number,
on its overall effectiveness at managing cash
flow. For example, your business has the equivalent
of 45 days of sales in accounts receivable,
20 days in inventory and 30 days in accounts
payable, its cash conversion cycle would be
a very acceptable 35 days. To phrase it another
way, a dollar spent today would theoretically
be returned in 35 days.
Managing cash flow is one
the key ingredients for success in any business.
Proper forecasting, combined with the implementation
of spending controls, accelerating cash receipts
and monitoring inventory may be the recipe
for success. We have a great deal of experience
in this area, and can work with you to maximize
cash flow. Give us a call today.
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Phone
Customers Celebrate New Choices |
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Our mission is to provide information and strategies
to business owners and managers for improvement
in the effectiveness of its business management
so that key objectives can be realized.
|
|
Ted Hofmann
- Principal/Senior Consultant
John Morre - Principal/Senior Consultant
Linda Panichelli - Principal/Senior Tax
Consultant
CFO Plus, LLC
1450 Grant Avenue, Suite 102
Novato, CA 94945-3142 |
Home Office |
: |
415-898-7879 |
Toll
Free |
: |
866-CFO-PLUS
or 866-236-7587 |
Fax |
: |
415-456-9382 |
Email |
: |
thofmann@cfoplus.net
jmorre@cfoplus.net
lpanichelli@cfoplus.net
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Website |
: |
www.cfoplus.net
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On
November 24, 2003, consumers celebrated their
choice to be able to take their current cell
phone number with them when switching cell phone
providers, and to transfer their home phone
number to their cell phone (in limited circumstances)
– if they live in the top 100 metropolitan areas.
For those consumers living outside the top 100
metro areas, phone companies must implement
number transfers by May 24, 2004. To see a list
of the top 100 metropolitan areas, go to http://wireless.fcc.gov/wlnp/documents/top100.pdf.
One
phone company reports that, from 2000 to 2002,
customers disconnected 5 million of their 192
million phone lines. During that same time,
cellular companies gained 31 million subscribers
to end with 140 million users. These numbers
make land line phone companies nervous about
the new phone number portability.
In a perfect world, these changes
should increase competition between providers
and result in better service and more competitive
calling plans for those who decide to stay land-locked.
But, as with anything, be sure to read the fine
print before you jump ship.
According to Consumers Union
(www.consumersunion.org), an independent, nonprofit
testing and information organization serving
only consumers, and the publisher of Consumer
Reports, there are at least seven things you
should consider:
• Price:
Most cell plans are priced per minute, and get
pricey when you exceed your limit. However,
local landline (home wireline) service is often
a flat rate in which you pay the same fee no
matter how much you use the phone. Many cell
phone plans charge for incoming calls, but landlines
do not. Take care to consider how much you will
use the phone and whether the cell plan includes
a sufficient number of minutes for your outgoing
and incoming calls.
• Extras and Long Distance:
Home wireline service typically charge extra
for such things as caller ID, voice mail and,
of course, long distance. Cell phone plans often
include the extras and long distance in their
service. If you switch from a home wireline
to wireless, your long distance service will
not move with you, so make sure to verify your
long distance options when changing to a cell
phone provider.
• Safety: If you dial 911 from
your home phone, the emergency operators can
immediately pinpoint your location. If you dial
911 from your cell phone at home or on the road,
most emergency operators cannot readily locate
you, and unfortunately, there is no guarantee
that your call will get through.
• Service: Consumers frequently
complain about wireless service quality, such
as dead zones and dropped calls. Overloaded
networks and "dead spots" can affect
your ability to use a wireless phone in ways
that are not a consideration for landlines.
• Fees: Companies are allowed
to charge a fee to departing customers for their
cost of switching over phone numbers, but cannot
charge in excess of these “porting” costs. Some
companies may pay your current phone provider’s
cost in order to get your business. Consumers
should remember that if they change service
before their contract ends, they likely will
pay a termination fee. They should also keep
in mind that while they get to keep their cell
phone number, they might not be able to keep
their cell phone, so consider the cost of a
new phone before switching.
• Initiating a Switch: If you
want to change cell phone carriers, or move
your home wireline to a cell phone, contact
the new carrier, who will start the process.
Do not terminate service with your existing
carrier before initiating a switch. Also, know
that you are obligated to pay any early termination
fees that may apply with your existing cell
phone provider.
• Switching Time: It should
only take a few hours to move your current cell
phone number to a new cell phone provider (wireless-to-wireless
transfer). It is expected to take several business
days to complete a home wireline to cell phone
transfer (wireline to wireless). Make sure to
ask the cell phone company you are moving to
if you will still be able to use your home wireline
during the transfer process.
Phone companies continue to try to block the
number portability that goes into effect November
24. To follow changes in the law, go to the
Consumers Union Web site, www.escapecellhell.org.
There you will find links to government pages,
frequently asked questions, and resources to
help you shop for a cell phone provider. To
access a free shopping guide, go to http://www.consumersunion.org/campaigns//learn_more/000377indiv.html.
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Performance
Measurement at Work
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Our mission is to provide information and strategies
to business owners and managers for improvement
in the effectiveness of its business management
so that key objectives can be realized.
|
|
Ted Hofmann
- Principal/Senior Consultant
John Morre - Principal/Senior Consultant
Linda Panichelli - Principal/Senior Tax
Consultant
CFO Plus, LLC
1450 Grant Avenue, Suite 102
Novato, CA 94945-3142 |
Home Office |
: |
415-898-7879 |
Toll
Free |
: |
866-CFO-PLUS
or 866-236-7587 |
Fax |
: |
415-456-9382 |
Email |
: |
thofmann@cfoplus.net
jmorre@cfoplus.net
lpanichelli@cfoplus.net
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Website |
: |
www.cfoplus.net
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Subaru-Isuzu’s
Success with the Balanced Scorecard |
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Over
the years, many buzz words have been thrown
around in corporate America. If you aren’t familiar
with terms such as co-opetition, B to B, ROI,
PDA and the like, the business world may just
be passing you by. Two new buzz words have been
born from actual practice and proven success.
These are performance measurement and the balanced
scorecard.
Large organizations select and use performance
measurement systems to determine whether they
are fulfilling their vision, meeting their
short-term objectives and achieving their
long-term, strategic goals. The measures focus
on a critical few that link directly to the
company’s strategic plan, and are a combination
of financial and non-financial indicators.
Some financial performance measurements are
historical, whereas non-financial performance
indicators allow an organization to review
its performance in real time and implement
immediate adjustments. In any case, the specific
indicators selected should best represent
the factors that lead to improved customer,
operational and financial performance.
Today, many companies are using a relatively
new approach to strategic management developed
by Drs. Robert S. Kaplan and David P. Norton
of the Balanced Scorecard Collaborative, Inc.
The “Balanced Scorecard” system is a management
system that enables organizations to clarify
their vision and strategy and translate them
into action.
With a properly deployed and automated balanced
scorecard approach, each management level
can monitor the key performance measures within
their control and responsibility, and understand
the relationship to the overall success of
their company. This approach provides management
with visibility into the operations and issues
of each business unit. It enables management
to implement and track key initiatives for
the purpose of addressing problem areas earlier
or pursuing additional business opportunities
faster and more effectively.
A good example of Putting Performance Measurement
to Work may be found in Subaru-Isuzu Automotive,
Inc., a joint Japanese automotive manufacturing
venture between Fuji Heavy Industries and
Isuzu Motors Limited.
In 1996, Subaru-Isuzu became conscious of
the fact that that they were using only historical
data measures to judge the venture’s overall
performance. They realized that they had only
vague goals and objectives to drive current
and future growth. They were unable to effectively
forecast targets and objectives for one, three,
five and ten year plans. In 1998, the official
decision was made to implement the balanced
scorecard approach to performance measurement
– a system designed in such a manner that
the measures selected would actually support
organizational goals and objectives.
The next step was to decide what needed to
be measured, the frequency of measurement
and finally, what type of system was needed
to maintain and display the performance trends.
After juggling numerous ideas on what needed
to be measured, it was concluded that too
many measures would likely create an unmanageable
data overload. So, a decision was made to
use the Malcom Baldrige National Quality Award
criteria. This way, “approved” performance
measures could be categorized under one of
seven business performance objectives. The
objectives include leadership, strategic planning,
customer and market focus, information and
analysis, human resource focus, project management
and results. Subaru/Isuzu ultimately reduced
the seven down to five major categories that
best represented the venture’s key business
performance goals.
Now, for the logistical end of the deal –
How could Subaru/Isuzu provide a one-stop,
easy to use, data management and measurement
system for their end users that included security
for sensitive data? It was also essential
to find a system that would allow the organization
to measure performance data against one another,
so that the trends in one performance measure
might help predict how another performance
measure would react to change. To this end,
the venture considered all the applications
programs currently being used in house (Excel,
Paradox and Access). None of these were acceptable
to management. Subaru Isuzu selected pbviews
to satisfy the perceived system criterion
and to ultimately maintain and display the
balanced scorecard.
While it is still early in the process, Subaru
Isuzu has identified numerous areas for improvement.
According to Mr. Brent Lank, Senior Business
Performance Specialist, “By far, the best
success so far is working toward having all
necessary data in one system in one location.
We wasted countless hours and dollars ‘browsing’
for reports in our network, calling people
for data, etc.”
Subaru Isuzu is now forecasting
targets and objectives for one, three, five,
and ten year plans based on this system of
measurements. Lank went on to say, “This is
truly a revolutionary change for our organization”.
Companies
of all sizes are experiencing the dramatic
results associated with performance measurement.
Small and large alike are using meaningful
performance measurements to look into the
future, and to make critical adjustments that
will help meet and exceed established goals
and objectives. By combing performance measurement
with the balanced scorecard approach, organizations
can clarify their vision and strategy allowing
them to translate these into action. It provides
feedback around both the internal processes
and external outcomes in order to continuously
improve strategic performance and results.
An automated balanced scorecard focuses on
proactive communication for addressing problems
earlier and pursuing opportunities faster
and more effectively than traditional management
models. Find out more about how you can put
these tools to work for you, give us a call
today!.
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