Month: December 2019

Preface: The SECURE legislation — standing for “Setting Every Community Up for Retirement Enhancement” — puts into place numerous provisions intended to strengthen retirement security across the country.

NEW Tax Legislation Update: The Secure Act Tax Legislation

The Setting Every Community Up for Retirement Enhancement Act– A.K.A. the SECURE Act, has been under tax law construction for approximately three years. The legislation train connected to the increased spending bill to keep the government open for business pulled quietly away from the station in the recent days with new and improved retirement tax saving features.

SECURE Act Highlights:

Employer Credit for New Plan Start-ups: Before the SECURE Act, employers were at liberty to claim a tax credit equal to fifty percent of the start-up costs of a qualified retirement plan for employees, up to a maximum of $500. The SECURE Act increases this new plan credit limit to the greater of  $500 or the lesser of $250 multiplied by the number of non-highly compensated employees eligible to participate in the plan or $5,000.

Required Retirement Plan Minimum Distributions: Under long-standing rules, participants in qualified retirement plans and IRAs were obligated to start taking required minimum distributions in the year following the year they turned age 70½. The SECURE Act pushes up the ceiling on the required minimum distribution age for retirement plan distributions to age 72 from 70½.

Improved 401(k) safe harbor rules: The tax law revision includes changes legislated to give simplicity, and improve employee retirement savings safeguard. One example is the new legislation eliminates the safe harbor notice requirement, while keeping the requirement permitting employees to make or change a 401(k) election at least once a year.

College Student Retirement Benefits: Although non-tuition expenses received by graduate and postdoctoral students didn’t qualify as earned compensation previously, therefore the funds could not be used for IRA contributions. The new tax law includes qualifying these earnings while additionally structuring penalty-free withdrawals of up to $10,000 from 529 education-savings plans for the repayment of qualifying student loans

IRA Age Limits on Contributions: Before the SECURE Act, retirement savers were not permitted to contribute to a traditional IRA once they attained the age of 70½. With the SECURE Act, this restrictive feature has clearer skies potential.

Automatic Retirement Plan Enrollment Credits: To improve employee participation in qualified retirement plans, the new law creates an additional credit of up to $500 per year for businesses that provide new 401(k) and SIMPLE plans with an automatic enrollment feature. This credit is in additional to the start-up cost credit for purposes encouraging employee automatic participation in the qualified retirements plans.

Part-time Workers Inclusion: Before the SECURE Act, small businesses did not need to include part-time workers with less than less than 1,000 payroll hours per year from participating in 401(k) plans. The SECURE Act changes this feature for retirements plans to include all employees who have completed either one year at least 1,000 payroll hours or three consecutive years of at least 500 hours of service.

Family Planning Early Withdrawals: Current tax laws exempt some retirement plan distributions from retirement plans from a 10% tax penalty on early savings withdrawals prior to age 59½. The SECURE Act improves these qualifying withdraws to include qualified child birth or adoption expenses.  The tax law now allows penalty-free withdrawals up to $5,000 from retirement plans for families with either a birth or adoption of a child.

Preface: No one is useless in this world who lightens the burdens of another. – Charles Dickens

Reflections from A Christmas Carol

It begins with credit. What does it end with but credit? It is well said that “Animals do not worry about money, only People worry about money.” Charles Dickens’s financial woes in 1843 were no doubt somewhat discouraging to the young thirty-one-year-old father and, he like a few today, was worried about money. Having recently relocated to a more spacious and higher maintenance residence to provide for his growing family of five children, money was tight, and his debt was growing. With a lack of responsible budgeting, i.e., Charles was failing to live with-in his means; the stress was multiplied with dear relatives asking him for money.

With his two recent novels resulting in lackluster sales, his publishers had cut his royalty payments, and he was strapped for cash. The stakes were high, and the financial pressures were growing. Charles Dickens that year may have perceived the Christmas Holiday Season in the following quote “What’s Christmas time to you but a time for paying bills without money; a time for finding yourself a year older, but not an hour richer?” The famous book A Christmas Carol was “A Miracle of Christmas” for the young author, which has been adapted as literary work shaping the meaning of the Holiday Season for dozens of decades following.

Today, many have no appreciation of the happiness in avoiding the debtor’s prison, that Charles Dickens knew too well. He was scarred from the childhood trauma from being pulled from school and forced to work in boot-blacking factory, to help his father in Marshalsea debtors prison. It was a burning memory for the young Dickens, and his book describes the brutal terrors of failing on debt payments in that era.

On the contrast, Mr. Scrooges’ journey from an innocent student to the kind Mr. Fezziwig’s office and then onward to the stingy miser, was perhaps or perhaps not a matter of chance. Whether it’s the saddest part of the story or not, Mr. Scrooges likely began his career with good or maybe great intentions, but his decision to remain silent when told to be happy with the life he had chosen, was the moment he realized his incremental steps forward ultimately towards eating porridge for Christmas dinner in a room lit with one candle.

Formally stated, Newton’s third law is: For every action, there is an equal and opposite reaction. The statement means that in every interaction, there is a pair of forces acting on the two interacting objects.

Newton’s law may perhaps be true of Mr. Scrooges’ business partner Mr. Marley. From Mr. Marley’s perspective, the common welfare was not his business interest or practice. He strongly encouraged Mr. Scrooge to amend his ways. And then there was also Newton’s law for Mr. Cratchit. Never allowed to put more coal on the fire to keep warm while at work, while being paid 15 shillings a week, while just caring for his family was enough. Finally, the big turkey arrived from Mr. Scrooge on Christmas Day.

No one is useless in this world who lightens the burdens of another. – Charles Dickens.

Mr. Marley was in fantasy land, pulling a chain of heavy bank boxes, as well as with his opportunity to redeem his time. Mr. Scrooge was too. We are not. Whether you feel like Charles Dickens, The Cratchit Family, nephew Fred, Mr. Scrooge, or Mr. Fezziwig say, this Holiday Season, let us genuinely remember Mr. Scrooges words “I will honor Christmas in my heart, and try to keep it all the year.” 

And to our readers, we quote the honorable Tiny Tim, “God bless ‘em, everyone” and Merry Christmas!

Giving with Trusts, Foundations and Donor-Advised Funds

Credit: Douglas A. Smith

Recent federal tax law changes pertaining to itemized deductions have caused many people to rethink how they make charitable gifts. With the increased standard deduction, far fewer taxpayers will itemize, which means that small charitable contributions may not create the tax benefit the donor anticipated. At the same time, many charitably inclined people want to go beyond simply making small annual gifts to their favorite charities, preferring instead to make more substantial gifts during life rather than under a Will so that they can appreciate and enjoy how the charity utilizes the benefits. The good news is that there are several charitable giving techniques available that address both of these issues:

Charitable Trusts, Private Foundations, and Donor-Advised Funds.

Doug practices in the areas of estate planning, estate administration, nonprofit organizations, business formation and succession planning, and tax law.

In addition to drafting wills and trusts for estate planning clients, Doug has experience structuring charitable gifts and planning for tax-deferred retirement plan distributions.  He also assists nonprofit organizations in obtaining and preserving tax exempt status and helps reinstate nonprofits that have had their exempt status revoked. Doug works with business clients from startup through succession, providing advice on choice of entity, preparing trusts and buy-sell agreements, and structuring business transactions.

Preface: [The definition for] “Customer: A person who purchases a commodity or service. Client: A person who is under the protection of another.” Quote from Jay Abraham.

Questions are the Strategic Runway Towards A Great Business

Credit: Donald J. Sauder, CPA | CVA

As the founder and CEO of the Abraham Group, Jay Abraham has been acknowledged as a foremost authority in the field of business performance enhancement with a marketing metaphor.

This testimonial of Jay’s works is derived from GaryNorth.com about a man who owned no business. Following Jay’s marketing approaches, he did his work without any money of his own. Working for a company as an employee that sold horse trailers, that’s what I would call a “niche market” he strategically developed a huge market opportunity.

What would you figure a horse trailer costs? Guess. At the top end, a horse trailer sells for around $100,000. Sell one, and the money rolls in. So were do you start selling horse trailers? His method was to bring in a crowd of people who were horse lovers. One event he held was visited with 2,900 people. He put on a bazaar, which for us non-horsey types would have been bizarre. He brought a lot of horse-related vendors under one roof: a large indoor arena. He persuaded international horse trainers to come and give free exhibitions. He charged most vendors a low price to set up a booth: $30. He sold all of the spaces. He also contacted horse groups. He did joint ventures with them. They got a free booth for promoting the event to their subscribers. They could use the crowd to recruit new members. Follow-up events that charged $5 to attend drew 1,400 attendees. The money paid for the performers. His boss sold trailers. This cost the company only the salary paid to the budding entrepreneur. The budding entrepreneur was on salary. I imagine he lifted off the runway.

Quoting Jay’s philosophy: The driver of business performance today is a surprisingly simple understanding: You are paid by the world, to think differently/critically and to solve problems or create opportunities/value in better ways than others. You are paid to think differently and more critically than your competitors think – about everything from business model, to brand position, to distribution channels, to marketing, to superior competitive market strategy.

The above testimony exemplifies effort and initiative. Whether a journeyman in business, or a businessman, now ask yourself the following business self-assessment questions, for the Marketing | Sales and Operations. If you answer any question “NO”, then follow-up and ask yourself – “WHY NOT”? Document your answers concisely. Answering “NO” isn’t necessarily wrong, but you should have an answer on “Why Not.”

Marketing | Sales

 

1. Does your business have a marketing and sales plan?
2. Do you know why your customers purchase from you?
3. Would your customers say your business is among the best in the area for its product(s) or service(s)?
4. Does your team understand how they help to solve customer problem(s) that in-turn generate sales and therefore provide them job security?
5. Do your customers purchase from you because of the excellent quality of your team’s relationships?
6. Do your customers perceive your team as competent and experienced?
7. Does your business have its own registered domain name?
8. Does your business have a strategic and effective website?
9. Does your business obtain regular feedback from customers?
10. Does your sales team provide adequate information and reasons on why customers should choose your products or services?                                                                                                                                     
    

    Operations

11. Does your business have written standard operational procedures?
12. Does your team have incentives to be effective with project management?
13. Does your business have a work environment that you’d want your daughter to work in?
14. Does your business strive to comply with its industry regulations?
15. Does your business make operational decisions that provide effective solutions instead of short-term work-arounds?
16. Does your team continuously work to improve efficiency and effectiveness of operations?
17. Does your team have the tools to complete tasks effectively?
18. Do you set clear expectations regularly on team performance effectiveness, expert project completion, team character and team attitude in the field?

Call to action: in summary, I encourage you to read the book: The Five Most Important Questions You Will Ever Ask About Your Organization. Then keep your strategic “thinking hats” on.

1. What is our mission?
2. Who is our customer?
3. What does the customer value?
4. What are our results?
5. What is our plan?

Preface:  A CFO will manage the accounting process and provide oversight to financial reporting, but the real value of a CFO is working to make your enterprise even more successful, which goes far beyond monthly reporting and period-ending statements.

Skills Every Chief Financial Officer Needs (Segment 2) (2015)

Credit: Donald J. Sauder, CPA | CVA

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 research and development, and alternative investments of profits all weave into capital and cash management. A CFO should have experience in forecasting cash sources and uses to maintain 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 such as research and development).

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 receivables for timeliness, assess and optimize peak-to-trough inventory levels, monitor duration of cash conversion cycles, while developing key ways to measure, analyze, monitor, and manage cash flow and financial performance precisely. This gives your team greater accuracy and confidence in financial decision-making for short or long-term goals, such as an incentive plan for the sales team for this quarter.

Financing. A CFO must establish and maintain quality relationships with lending sourcessuch as banks, for existing and future credit needs. 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 demands and receivable summits.

If your strategy includes acquiring businesses with 1 bolt-on acquisitions such as a competitor, vendor, or subcontractor, or 2) platform acquisitions such as new business sectors like a residential framer acquiring a commercial contractor, or 3) transformation investments–venturing into new ideas such as an auto dealership investing in an internet site for consumer-to-consumer auto financing, you will want a CFO that has experience with intrinsic values, due diligence, and business planning. Many small business entrepreneurs can defer to their CPA firm when these opportunities are on the table.

Accounting and Internal Control. This is commonly what most entrepreneurs think of when discussing the role of a CFO. Yet, financial reporting and monthly reporting are only two of the many roles a CFO can fill for your business. A CFO will monitor internal processes including segregation of duties, the expertise and experience of the accounting personnel, the independence of board members, and the entrepreneurial style of the management team. Segregation of duties will minimize fraud. Experienced accounting personnel will lead to greater accuracy and timeliness of financial reporting. A CFO will manage the accounting process and provide oversight to financial reporting, but the real value of a CFO is working to make your successful business even more successful, which goes far beyond monthly reporting and period-ending statements.

Organizational Management and Leadership. Many larger businesses will have a controller who reports to the CFO. Yet for financial reasons some businesses have all accounting staff– accounts payable department, accounts receivable department, and inventory manager–report to the CFO. The CFO should develop plans for financial personnel development, hiring, a systematic chart of accounts, financial systems and software(such as inventory modules and methods), financial management, and third-party professionals such as a payroll firm, CPA firm, management or sales consultants.

If you have a developing business, the ability to hire a CFO who can develop future accounting staff is well advised. Like Jack Welch said, “Business is about people… at the end of the day, it’s only the people that matter.”  A well- trained and competent accounting department begins at the top, and as said earlier, the real role of a CFO is to make good businesses even better. That includes making good people even better, too.

In summary, a CFO should have skills in strategic thinking, business risk planning, capital and cash management, financing, accounting and internal controls, and organizational management and leadership. This takes years of experience and years of development–easier said than hired. Continually encourage your enterprises chief financial officer to engage in activities towards further development in these key areas of CFO expertise.