Financial Triage – Cash Flow Budgeting in Uncertain Times

The end of the year is around the corner; now is the time for business owners to take a long hard look at 2009. The fact is that every business needs a budget. According to my own anecdotal inquiries, a majority of small businesses do not budget. To make matters worse, some of the businesses that do budget will use aggressive growth forecasts. Thus, the budget's value is diminished with unreliable data. Preparing a budget is not an exact science, but many business owners can identify trends in their businesses. During these uncertain times, we are helping our clients build "bottom up" budgets, or break even budgets. We then determine the monthly break even number for the business. This sends a clear message to the business owner on what needs to be collected each month to cover expenses. Unfortunately, many business owners have no clue about their monthly break even number. They keep wondering why they have to tap lines of credit and throw personal monies into the company. If your company is in growth mode, that is one matter, but an owner shouldn't be throwing in money to cover working capital needs. Now is the time to get your arms around the course of your business. My simple advice – prepare a budget!

Estate Tax Planning

I attended an estate planning workshop on Wednesday and learned some interesting information. The percentage of Americans who actually have a taxable estate is less than 1%. In 2008, if you die with more than $2 million in your estate, you could potentially pay tax. In 2009, the applicable exclusion amount increases to $3.5 million. As the stock market remains volatile, I think it would be safe to say that many estates are worth less than they were at the beginning of the year. Thus, we will see even less 706s filed in 2009.

But for the average American; why estate plan? Why not just have a simple will? There are many reasons for this, but one of the main reasons is avoiding probate. P-R-O-B-A-T-E court is a place that you want to avoid like the plague. Why? Because the court gets involved and literally halts the process. If you are a beneficiary and looking for a distribution, you will have to wait for a long period of time. Also, you open up your entire estate to the public since creditors have six months to file any claims against your estate.

By creating living trusts, you can avoid this frustration and skip probate court all together. I recommend my clients to speak to an estate planning attorney and plan for the unforeseen wisely.

CD Interest Rates

I really haven't paid a whole bunch of attention to CDs until recently. I sit on the board of a governmental agency and met with the bankers for a year end review of our account. The decision the board had to make was where to put our money for a donation account. Isn't this the $64,000 question these days? Well placing it under the mattress wasn't an option, so we decided between a money market account and CD.

The money market account allowed us to access the funds at any time, but rewarded us with a much lower interest rate. The agency had no plans on spending any money until 2010, so a CD made more sense.

You would think the decision would be straightforward, but there were some perils. When we started analyzing the 6, 9, 12, and 18 month CDs, the spread was a mere 10 basis points. Why would you want to lock up your money for 18 months and receive essentially a fraction of a percentage in higher interest? Where will interest rates be going? In investing nomenclature, this is known as interest rate risk. Shouldn't an investor be rewarded for locking their money up for longer durations? As a board, we chose the six month CD and review where interest rates will be in six months. I don't have a crystal ball, but I am not sure how much lower they can drop.

A little about me

I am a practicing CPA with an accounting firm located in the Northwest Suburbs of Chicago. My interests go well beyond typical accounting. I specialize in tax planning, business valuations, exit planning, and litigation support.

The CPA profession has undergone vast changes during the past 20 years. I started my career in 1986 as an office clerk with my father's firm. I have been partners with my father since 2002. The firm has undergone a vast amount of change; primarily technology leading the way. The CPA has gone from a "generalist" to a specialist. No longer can a CPA provide bread and butter services, e.g. bank reconciliations, bookkeeping, etc. and be competitive in today's market. The clients are more sophisticated and need their CPA to be more than a bean counter, but rather a "trusted advisor".

CIRCULAR 230 DISCLOSURE

In conformity with U.S. Treasury Department Circular 230 tax advice contained in this communication and any attachments is not intended to be used, and cannot be used, for the purpose of avoiding tax penalties that may be imposed under the Internal Revenue Code, nor may any such tax advice be used to promote, market or recommend to any person any transaction or matter that is the subject of this communication and any attachments. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

Finally!

I've finally created my own blog! I finally checked out a Word 07 book from the library and learned how to start blogging.

My intention is to write a wide array of topics on various business related subjects that I run into in my practice. Please feel free to chime in and ask questions! My goal is to start posting by mid-December.

Jeff