When It Comes To Filing Your Taxes, Today Is Not The Day To Dawdle

16. January 2019 11:35 by Megan Kunis in

Tax returns are due  -- as is any remaining money you owe to Uncle Sam for 2016.

 So if you still have an unpaid balance for last year, you'll have to act fast to avoid getting penalized.
 

The best thing you can do is file your 2016 tax return, or at least file for an automatic six-month extension.

If you don't do either, you'll be hit with a failure-to-file penalty. That will amount to 5% of your unpaid taxes for every month -- or part of a month -- that you don't file for up to five months. So that penalty will cap out at 25% of your unpaid taxes.

On top of that you'll be subject to a failure-to-pay penalty, which amounts to 0.5% of your unpaid taxes every month, for up to 50 months, for a maximum of 25% of your outstanding balance.

Did we mention interest? On top of these penalties, you'll also be charged interest on your unpaid taxes starting on April 19.

Here's what you should do if you owe money but still haven't filed:

At least file something.

As the IRS helpfully notes, "the failure-to-file penalty is 10 times more than the failure-to-pay penalty. So if you can't pay in full, you should file your tax return and pay as much as you can." Or at least file for an extension and include some payment with it.

Learn what your payment options are.

The IRS has a number of payment plans available if you can't pay all that you owe.

If you owe more than $10,000, you might consider hiring a tax attorney, enrolled agent or CPA with experience setting up payment plans to represent you.

"The more that is owed to the IRS, the more complicated it becomes to negotiate with the government," according to Garrett and Deborah Gregory, two former IRS attorneys who wrote the "Guide to IRS Collections for Liabilities under $10,000."

Filing may help you avoid a late-payment penalty

If you've already paid at least 90% of the taxes you owe for 2016, you may be spared the late-payment penalty so long as you at least file for an extension. You will, however, still owe interest on your unpaid balance until it's paid off.

If you're reading this and thinking I don't have to file today because I probably don't owe any more money, file anyway. What if you're wrong and it turns out you do owe money? If you don't file your return or apply for an extension, you'll get hit with the penalties above plus interest.

Second, if you're owed a refund, why wait? The average refund the IRS has paid out so far this year is $2,850.

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What Business Advisory Tools Do I Choose?

25. December 2018 16:17 by Junita Jackson in

With a growing number of business advisory software tools on and entering the accounting market, it is often difficult to know what to choose.

At Smithink we recommend following our EnablerTM Seven Step to Success process using the best software at the critical steps. It is not as easy as having one tool for each step. There are several great applications that can be used. In this article, we will look at some of the tools that are available for each step.

The first step in the EnablerTM process is preparing your firm to succeed with business advisory services. This is critical to the ongoing delivery of services and should include the appointment of a champion and analysis of the right clients to start with. Many firms are using Excel sheets and Word documents to plan out their service packages and strategies for implementation. Key to this step is the development of a Client Relationship Management (CRM) solution such as MYP's Arm and Arm Pro.

From there you need to unlock your client's business advisory needs with an interactive client needs analysis. This, in my opinion, is the most important step, as it will indicate where the client's strengths and weaknesses are, and allows a proposal to develop to address specific needs. Great cloud tools here include Cash Flow Story's simple four-chapter approach to business performance and My Yardstick What's Important to you (WITY) tool and E-Scope automated pricing system can assist here to understand client needs and develop innovative proposals.

The third step is to create a "disturbance" in your client's mind using business value assessments. Paramount to this step is establishing how much the client thinks their business is worth against the commercial value and linking this to the concept of a Business Value Gap (BVG). Some of the best applications here are Cash Flow Story's Business Value Indicator and Bastar's materials, tools and programs that will calculate a capitalization rate for the client's business off financial data and a risk and value assessment. Another new tool in this space to increase the sellability of your client's business is Sellability Score.

From there we introduce financial diagnostic software to fill the gaps by analyzing and managing the client's key macro drivers and results that will improve their financial performance. We will look at where the business is today, its strengths (green flags) and weaknesses (red flags) and where it can be in the future. There are many solutions here including Cash Flow Story's Power of One, PANALITX, Fathom and Profit Guardian.

It is then time to look at the strategies required to implement micro services using smart tools and resources such as ESS BIZTOOLS and ESS BIZGrants. Attaché Software also has great tools here that can assist to implement key strategies with your clients.

Then track the performance of the client's business by preparing budgets and cash flows (or action plans) with Castaway, Calxa or Plan Guru. This step can link back to the development of business and action plans. MAUS Software's Master Plan is an innovative solution to address this need. Another great tool here is MYP's Estate Planning application to unlock your client's estate planning needs and develop key strategies for the future.

Finally, generate new business by growing your business advisory specialization through profitable scenario planning and offering your "how would you like to see the financial impact of every business decision before you make it" service. This look into the future requires software that can simply show the client their pre and post position. Any of the financial diagnostic tools will adequately handle this task.

With this myriad of choices, a firm needs to be confident that they select the right application for their clients and staff.

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5 Simple Ways To Create A Balance Sheet

16. December 2018 19:21 by Junita Jackson in

First things first: what is a balance sheet? A balance sheet is an essential way to evaluate a business’ financial health and can be calculated every month, quarter or half-year to create a snapshot of a company’s net worth.

In this article, we will be discussing how to calculate an annual balance sheet for a business. Creating an annual balance sheet will help you evaluate the equilibrium between your company’s assets against its liabilities, to determine the overall financial strength and value of your business. For an example of a full balance sheet, scroll down to see the example at the end.

1. Understand the Basic Equation

The following equation is a simplified representation of what a Balance Sheet calculates: the total sum of your company’s assets equals the value of the company’s liabilities and owner’s equity.

Assets = Liabilities + Owner’s Equity

As with any math equation, you can play around with the equation to isolate one category. Most business owners and investors use the following equation to calculate the value of the company’s equity.

Owner’s Equity = Assets – Liabilities

2. Calculate Assets

Assets, money, investments, and products the business owns that can be converted into cash: These are what put companies in the financial positive. A thriving company should have assets that are greater than the sum of its liabilities; this creates value in the company’s equity or stock and opens up opportunities for financing.

It’s important to list your assets by their liquidity—the facility by which they can be turned into cash—starting with cash itself and moving into long-term investments at the end of the list. For the purpose of an annual balance sheet, you can separate your list between “Current Assets,” anything that can be converted into cash within a year or less, and “Fixed Assets,” long-term possessions that can be sold or that retain value down the line, minus depreciation.

“Current Assets” may include:

  • Cash: All money in checking or savings accounts
  • Securities: Investments, stocks, bonds, etc.
  • Accounts Receivable: Money owed to the business by a client or customer
  • Inventory: Any products or materials that have already been created or acquired for the purpose of sale
  • Prepaid Insurance: Any payments made in advance for business insurance coverage or services (this tends to be paid in advance for the year).

“Fixed Assets” may include:

  • Supplies: Important objects used for business operations (manufacturing equipment, computers, office furniture, company cars, etc.)
  • Property: Any office building or land owned by the business
  • Intangible Assets: Intellectual property such as patents, copyrights, trademarks and other company rights that retain intrinsic value

3. Determine Liabilities

Liabilities are the negative part of the equation; these include operational costs, debt and material expenses. Generally speaking, the lower your liabilities, the greater the value of your company (and equity) can be. “Current Liabilities” include cash spent, as well as any debts that must be paid out within one year, while “Fixed Liabilities” refer to bills due anytime after one year.

“Current Liabilities” may include:

  • Accounts Payable: Money owed by a business to its suppliers or partners
  • Business Credit Cards: Company credit card bills due
  • Operating Line of Credit: Any money owed to a bank that has extended the business an operating line of credit
  • Taxes Owed: Any federal and state taxes owed for one year
  • Wages and Payroll: Employee compensation, including wages, medical insurance, etc.
  • Unearned Revenue: Any revenue garnered from a service or product that has yet to be delivered to the customer or client

“Fixed Liabilities” may include:

  • Long-Term Mortgages: Property or building mortgage expenses
  • Bonds payable: Long-term bonds owed to the government, as well as any interest paid on the bond (this interest is often semi-annual and can be added to “Current Liabilities”)
  • Pension Benefit Obligations: The total amount of money the company owes to employee pension plans up to the current date
  • Shareholder’s Loan: A form of financing provided by shareholders
  • Car Loan: Any long-term car loans on company vehicles (plus insurances costs)

4. Equity Valuation

Owner’s Equity = Assets – Liabilities

The value of your assets minus your liabilities will result in an estimation of the value of your company’s capital. If this equation results in a negative net worth, this can be dangerous for a small business; it will make it difficult for to secure financing, which can be troubling for a company whose expenses are already eclipsing its profits.

If, however, a company has positive equity, this means that business owners have the option of acquiring capital by selling part of their business through equity, stocks and/or dividends.

In a sole proprietorship, this is called the “Owner’s Equity”; in a corporation, this is called “Stockholder’s Equity,” and it can include common stock, preferred stock, paid-in capital, retained earnings, etc.

“Equity” may include:

  • Opening Balance Equity: The initial investment into the company
  • Capital Stock: The common and preferred stock a company issues
  • Dividends Paid: Profits paid out to shareholders by a company (applies to corporations)
  • Owner’s Draw: Portion of the revenue used by company’s owner (applies to sole proprietorships)
  • Retained Earnings: The sum of a company’s consecutive earnings since it began

Having an Income Statement will assist you in filling out this section since it helps you determine the opening balance equity and the retained earnings.

5. Consider All Applications

When you put it all together, a balance sheet will probably look something like this:

balance sheet example
 

A solid balance sheet is an essential financial statement and part of a complete financial report. It can be used to secure financing or take a snapshot of a company’s current financial state, but it can also be used to evaluate the worth of your company over time. While accounting software like QuickBooks can easily generate balance sheets and other financial statements, it’s good to know the process to ensure your calculations are accurate.

Comparing your “Current Assets” minus “Current Liabilities” on a yearly basis will paint a picture of your company’s annual growth and expenses, which may have room for improvement. Calculating “Fixed Assets” minus “Fixed Liabilities” can provide a more long-term view of the company’s value over time and its ability to pay back long-term debts or expenses built up over many years.

Remember, the expenses of different companies may vary greatly, so don’t forget the assets and liabilities that are specific to your industry or area. For more help with balance sheets and other financial statements, see our infographic on financial reporting.

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Financial Analysis Implications Of New Revenue Recipe

9. December 2018 13:12 by Junita Jackson in

The revised revenue recognition requirements (Accounting Standard Update- Topic 606) become effective from the beginning of 2018 and they represent an important change for investors, particularly as revenue is integral for financial analysis across all businesses.

An odd feature of current reporting is that although revenue is arguably the most important financial statement line item, related disclosures (including within the segment reporting sections) are usually bare-bone, boilerplate and inconsistent across companies. In turn, the lack of robust revenue disclosures as well as the complex, ever-evolving nature of customer contracts across business models makes it difficult for investors to forecast the revenue changes that will likely result from the revised requirements. Not to mention that many companies are yet to disclose the anticipated effects of the new standard.

Hence, there is an urgency for investors to engage with company management and to probe on the implications of the revised requirements towards the amount and timing of revenue; as well as to ascertain the corresponding impact on gross margin profiles. Below is an elaboration on different financial analysis aspects.

Track Changes in Revenue Patterns

The software industry provides a perfect example of how various aspects of Topic 606 requirements can influence revenue patterns. An insightful elucidation of the practical implications of these revised requirements is accessible through a recently investor-targeted FASB webcast focused on the software industry, which highlights insights of two financial reporting experts from IBM and Microsoft.

The webcast outlines key differences in revenue patterns for Software as a Product versus Software as a Service (SaaS). The pricing structure of Software as a Product contracts includes upfront, point in time revenue due to software license installation fees and subsequent-period ratable (spread over time) revenue due to license maintenance and upgrade fees.

In contrast, the SaaS business model (e.g. Salesforce, Workday) has mainly ratable revenue patterns. Topic 606 has multiple requirements that can impact on the amount and timing of revenue including the application of significant judgment by management to determine and allocate a value to distinct performance obligations.

For example, it allows the use of estimated selling prices when actual transaction prices of unfulfilled promises to customer or performance obligations (e.g. software upgrades) are still undetermined. This is a departure from the more conservative requirements to apply vendor-specific objective evidence (VSOE) prior to allocating revenue amounts to future deliverables.

The FASB webcast highlighted that in the software industry changes in revenue patterns could mainly arise for hybrid business models (i.e. a combination of traditional software as a product and SaaS). 

Do Not Overlook Gross Margins Effects

It is important for investors to be alert to cost recognition impacts arising from Topic 606’s additional cost recognition guidance and to correspondingly monitor how the economics of businesses are getting reflected by the combination of revenue and cost recognition. Under Topic 606, costs of obtaining and fulfilling customer contracts will be capitalized and subsequently amortized or impaired over the expected life of the contract.

The incremental capitalization of costs (e.g. sales commissions in the software industry as highlighted by the FASB webcast speakers) and their subsequent amortization or impairment could result in greater matching in the recognition of contract costs and contract revenues. In turn, this could lead to smoother period-to-period margins.  For example, high-growth SaaS providers that have tended to portray a loss-making pattern in the first few years could portray smoother margins over the contract term.

Keep Sight on the Economics of Businesses

Beyond the issues flagged above in discussing the software industry revenue patterns, there are many other customer contract features (e.g. contract definition, uncertain future amounts to be received from customer, unexercised customer rights, financing arrangements, evidence of transfer of control to customer) that could affect the amount, timing and uncertainty of revenue for different businesses. Changes could occur in aerospace, engineering, construction, contract manufacturers, real estate, telecommunication, healthcare, a variety of manufacturers, retailers, e-commerce firms, asset management firms, and other intellectual property intensive firms.

Nevertheless, investors should remember that the intrinsic value of companies is primarily driven by the real economics of businesses rather than by accounting changes. They should always distinguish between changes in reported revenue patterns arising due to:

a.) Purely the effects of changes in companies’ accounting judgments on existing customer contracts and concomitant impacts on periodic revenue patterns;

b.) Changes in customer contracts including pricing changes and/or an alteration of the customer value proposition such as when software companies shift from a product to subscription business model; and

c.) Changes in customer demand influenced by seasonality, economic cycle, shifts in customer tastes, and product obsolescence.

Only B and C types of changes really affect the economic value of companies. In addition, investors should keep track of real economic value creation of companies by continuing to monitor the cash conversion of revenue as well as the correlation between revenue, gross margins and the cash flow from operations.

Monitor Transition Reporting and Disclosures

Transition reporting can help investors to discern the effects of revised standard and potentially allow a like for like comparison for a few years of revenue numbers based on the new model.  Preparers can choose between providing full retrospective transition (i.e., 2018, 2017 and 2016), modified retrospective transition with practical expedients, and cumulative catch-up transition (2018 onwards, a cumulative catch-up in opening equity and disclosure of what current year revenue would have been under the old guidance). The ideal approach for investors would be the full retrospective method but indications are that most companies are going to apply the modified retrospective.

This could also present a challenge towards comparing multi-year revenue trend data across companies as different entities may select different practical expedients.

Discern Revenue Risk, Key Judgments and Future Revenue Through Disclosures

The revised requirements have updated disclosures including significant judgments; revenue disaggregation; changes in contract assets and contract liabilities; and performance obligations (>1 year). These disclosures should help investors to discern revenue-related company specific judgments alongside any underlying associated uncertainty. Investors should also be aware that disclosed performance obligations will likely be a subset of future revenue. As such, investors will still have to rely on order backlog information reported within the MD&A as well as the profile of contract liabilities (equivalent to current deferred revenue).

In summary, the revised accounting changes will require ongoing due diligence by investors so as to appropriately interpret reported revenues.

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What Exactly Do You Need To Consider When Looking For The Perfect Premises?

3. December 2018 11:29 by Junita Jackson in

A universal answer to the question of what makes the perfect office space doesn’t exist. The kind of space you need, and will be comfortable in, depends entirely on the type of business you’re running. The same goes for the amount of space needed per worker. If all you require is a small desk and a phone connection, you don’t need masses of square footage. However, if your office also acts as your shop floor – a place to meet with clients – you’ll want a bit more space and possibly a more attractive and accessible location.

When it comes to size, Ann Clarke, design director at Claremont Group Interiors, is reluctant to dwell on average measurements because of the varying nature of what you need the space for. “Organisations like the British Council of Offices have certain recommendations but they’re reducing all the time because space is becoming increasingly expensive,” she explains.

 

However, there are some rough industry standards. For example, a densely packed call centre can get away with about 6-7 square metres per head, but a professional services firm will need more like 10-12 to allow for consultation space for clients.

It’s also important to bear in mind how much of the space is actually usable, and this can be dramatically affected by the shape of the building. “There are lots of things that impact the efficiency of a space,” says Clarke. “The shape of a building, where the lifts and stairs are and the amount of circulation space all make a difference. It all depends on how the floor plate is laid out.”

Clarke says the ideal office has a usable space/circulation space ratio of 85:15. “Once it falls below 85% it can get difficult and you won’t be able to use the space efficiently.”

If you want to minimise the amount of square footage you need, Clarke advises implementing some clever desk policies. Just because you employ 50 people, it doesn’t mean you need 50 desks. Working practices such as desk booking and hotdesking can work wonders if many of your staff are only in the office at certain times during the day or week.

“Think long and hard about storage too,” urges Clarke. “Do you really need to store all that paper on site, or can it be stored digitally or moved to cheaper storage facilities? You should have a clear idea about how you’re going to manage your storage before you commit to a particular space.”

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10 Frequently Asked Questions About Payroll Processing

29. November 2018 20:28 by Junita Jackson in

Processing payroll is one of the most complex and time-consuming tasks a business must complete. If you’re new to the process, payroll can be confusing. Here are answers to some of the most frequently asked questions about payroll.

What Is an EIN?

The IRS issues employee identification number (EIN) numbers. This 9-digit number is used on federal and state tax filings for businesses, including payroll tax reporting documents. You can apply for an EIN through IRS.gov.

The EIN number can be used for a variety of business entities, including sole proprietorships, S corporations, and C corporations. Assume, for example, that you operate a C corporation, Ganz Manufacturing. Your corporation can operate under more than one fictitious name, and you can use the same EIN number. Ganz Furniture and Ganz Tool and Die, for example, could be fictitious names used by the same corporation.

This policy simplifies the tax filing process. You’ll need to register your fictitious names in the state where your business is headquartered.

What Is an I-9 Form?

Employers use Form I-9 to verify the identity and employment authorization of individuals. Every U.S. employer must have a completed Form I-9 for each worker hired, whether or not the individual is a U.S. citizen. To complete the form, an employee provides documents as evidence of their identities, such as a driver’s license, birth certificate, or passport.

An employer must retain each Form I-9 for a specific period of time, and a state or federal government official may ask to inspect the forms. Government agencies review I-9 forms to verify that each employee is authorized to work in the U.S.

What Is a W-4 Form?

Each worker completes IRS Form W-4 to indicate the amount of tax withheld from gross pay for federal income taxes. Employees complete similar forms for state income tax withholding.

How Do I Determine Payroll Taxes?

Once a W-4 is completed, the employer uses IRS guidelines to calculate the dollar amount of federal income taxes withheld. Each state has similar guidelines to calculate state tax withholdings.

The payment schedules are published in IRS Publication 15.

What Does Withholding Actually Mean?

Withholding refers to the dollar amount of federal and state income taxes that an employer collects from a worker’s gross pay. The dollar amount is determined based on the IRS W-4 form and the state’s withholding form. The company sends the taxes withheld to the IRS and the state’s department of revenue.

The dollar amounts withheld are reported to the worker on Form W-2 after year-end. It’s the employee’s responsibility to file their personal tax return and calculate their tax liability. The worker subtracts the W-2 taxes withholdings from the tax liability, and any remaining amount of taxes owed should be paid when the tax return is filed. This process applied to both federal and state taxes.

What Are Third-Party Liabilities?

In addition to withholding taxes, employers may also withhold the worker’s share of payments for insurance premiums, retirement plan investments, and other benefits. The worker decides on the amounts withheld for the payments. Once these payments are withheld from gross pay, the employer forwards the payments to each third party (insurance company, an investment firm, etc.).

When Do I Need to File W-2s and 1099s?

W-2 and 1099 forms are issued for different reasons. A W-2 is issued to an employee to report gross wages earned, tax withholdings, and other withholdings from gross pay. If you have wages withheld to pay for insurance premiums or to fund a retirement plan, those amounts are reported on a W-2.

The IRS requires employers to mail W-2 forms to workers no later than January 31st of the year following the end of the tax year. So, 2017 W-2s must be mailed by January 31st of 2018.

If your firm has paid at least $600 to a vendor for a product or service, you must issue a 1099-MISC form to that vendor. Freelance workers are considered vendors and are issued a 1099-MISC form. The IRS also requires employers to mail 1099-MISC forms to vendors no later than January 31st of the year following the end of the tax year. The employer combines all of 1099 issued and reports them to the IRS on Form 1096.

What Is Workers’ Comp Insurance?

Businesses purchase workers’ comp (compensation) insurance policies to pay for medical care and other costs if a worker is injured or killed while working on the job. The insurance policy pays for medical expenses and makes payments to the injured party based on a state’s workers’ compensation laws.

The insurance premiums are based on the total dollar amount of payroll a company pays, and the type of work performed the employees. If workers perform manual labor or work in jobs that expose them to physical injury (such as construction), the insurance premiums will be higher.

Construction, engineering and other firms that have a higher risk for worker injury need to have safety plans in place to reduce the risk of workplace injuries. If you can limit worker injuries, you can keep your insurance premiums at a reasonable level.

Am I Required to Have Labor Law Posters?

There are state and federal labor law poster requirements for businesses. The posters address worker rights related to the federal minimum wage, equal employment rights, and worker safety, among others. Companies can purchase “all-in-one” posters for both federal and state labor law requirements. The posters should be displayed so that employees can see them each day. The posters are typically posted in a break room.

What Does a Payroll Company Do?

A payroll company can perform many of the complex tasks required to process payroll accurately. To get started with a payroll company, a business provides the gross pay and withholding amounts for each employee. The payroll company uses current tax laws to calculate the correct tax withholdings and also withholds any benefit payments.

You can give a payroll company access to your corporate bank account so that the company can send each net pay amount to employees. This outside firm submits the payments withheld to the IRS, state revenue departments, and any other third parties. The company will complete all payroll reports and create W-2s and 1099s at year-end.

Every business should consider using a payroll company. This decision will help you save time and ensure that your payroll processing is accurate.

QuickBooks offers a number of payroll solutions ranging from simply cutting checks to full-service payroll. All payroll products integrate directly with your accounting software to keep your books in order with less work.

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Why do businesses need to develop and implement good strategy?

23. November 2018 11:48 by Selina Stewart in

 

Seems like an easy question, yet when I ask business leaders this question there is a long pause followed usually by a discussion around how they develop a strategy in their business and not why.

So why is it important to ask the why question? There is no legal requirement to develop or implement the strategy. I was recently talking to a business leader at a networking function who proudly told me he had never done a business plan and his business had been quite successful. My response was to wish him well, but if you are going to use luck and hope, they will run out eventually.

In this blog, we examine the three key reasons why developing and implementing strategy is important.

Key reason #1 - The business remains competitive

A strategy is all about positioning. If we don’t nail a unique position, then we are just one of the pack. To position a business well, we need to be clear about two things. Firstly, who are our competitors, and how well does our positioning beat them and secondly does our positioning provide a clear value proposition to our customers.

If you can answer yes to those two questions, congratulations your business has a competitive advantage in your chosen market. If you can’t answer yes, then the market will decide what happens to your business, and not you. You would then rely on the strategy of “good luck” to survive. Good luck with that one!

Key reason #2 – Your business will be fit to deal with any dark clouds that could destroy the business

You know what we mean by dark clouds. We have all dealt with them. Losing a major customer, a product or service loses its market attractiveness and sales drop, cash flow crises caused by external events. The list goes on. One of my favorite questions, is “How could I destroy your business?”

Developing strategy allows us to identify both looming threats and be “match fit” to deal with them. A company that failed to do this, and now, no longer exists was the Australian airline Ansett. In the 1980s it was one of the best airlines in the world. By 2001 after 9/11 it had collapsed. Those responsible had no real strategy for a cash-strapped business for a number of years, so when external threats such as the 9/11 airline shutdown actually occurred, Ansett was highly vulnerable and collapsed. It wasn’t fit.

Key reason #3 – Your business needs to identify its strategic opportunities to grow and prosper

In 2016, the life of a viable, robust business model is getting shorter by the day. Previously in strategic planning, business could look 3, to 5 to 10 years out with a bit of confidence. Most business leaders I am talking to are only going out three years as the world is changing so rapidly.

We need good strategies to understand where the next growth opportunities are going to come from. Are there new markets we should be chasing, either geographic or demographic? Are there any innovative opportunities either with new products and services or for operational improvement?

Finally, with change occurring more quickly, businesses need to not only identify these opportunities but also ensure they are rapidly implemented.

Key reason #4 – A well-documented strategic direction unites a team

It’s important that a team is united on where a business is headed. A disparate team working on disparate issues leads to a confused business. Adelaide Steamship was an Australian company that had over 50 different interested ranging from freight through to departments stores to food processing. There was a long-held view when the banks stepped in and began liquidating assets in 1991, that the company had too many fingers in too many pies and lost its focus. On the contrary, the global packaging giant Amcor has always had a clear plan, focus, and direction, and for decades has continued to provide a good return to shareholders in a very competitive market.

Key reason #5 – A clear strategy provides a good filter for decision making

Every day, business leaders are faced with many decisions to make. What do we say yes to/ what do we say no to? Without a clear strategy, everything is up for grabs. We run the risk of saying yes to everything and becoming at best an average business.

We can use a clear strategy as a great filter in decision making giving business leaders absolute clarity in what to say yes and no to.

The Disney Corporation was a great example of this. There were some a potentially hostile takeover offer by Columbia studios in 1982.  The Disney board felt that the company would lose the founders purpose “to bring happiness to millions” if it sold out.

The board said no and the rest is history.

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Does Your Organization Need A Contract Leakage Study?

19. October 2018 10:50 by Selina Stewart in

Best-in-class organizations regularly measure the performance of their contracts through internal metrics and against industry standards and leading practices. Robust contract management drives compliance, efficiency, and value through the utilization of key performance and financial metrics and effective implementation of controls across the lifecycle of the contract.

 Managing leakages from third-party contracts (whether it is customer-side contracts or vendor-side contracts) is an ongoing challenge for most organizations. This is increasingly true in today’s business environment where improving margins and reducing costs are priorities. The likelihood of value leakage is higher in case of contracts with higher complexity (in terms of scope, commercial structure, risks and performance monitoring) and therefore these offer the best opportunity for savings. An ineffective contract lifecycle management may result in contract leakages (financial or non-financial) between 5% – 15% of contract value.

 

Understanding contract leakage and its root cause

Contract leakage can be defined as a gap (financial or non-financial) between the value captured or promised during the pre-award phase and the value delivered during or at the end of the contract. The value captured during the pre-award phase is often lost over time due to:

  • Weak monitoring of contractual commitments and risks
  • Lack of business case/value tracking and reporting
  • Ineffective contract change control or administration procedures
  • Scope creep and delivery and quality failures
  • Bad planning and demand management
  • Ill-informed buying
  • Miscommunication and rigidity in managing the relationship

CXOs, business heads and procurement specialists should always look for key indicators that suggest the possibility of value leakages in contracts. The following are some indicators that have been seen in contracts as red flags:

  • Lack of ownership or accountability over fulfilment of the contract or business case
  • Ad-hoc or no tracking and reporting of contract performance
  • Multiple variations or change orders
  • Lack of understanding of commercial structure and scope of contract
  • Contract compliances and risks being managed in silos or in an inconsistent manner
  • Contract costs and schedule overruns
  • Unsatisfactory stakeholders despite all performance indicators being met
  • Long pending open issues and disputes

Consider an example: Management of a Fortune 500 company was facing difficulties with the operational performance of their large business process outsourcing contract – the internal stakeholders were unhappy and at the same time the cost of delivering those services had increased through multiple change orders/ amendments. They had lack of visibility on the fulfillment of contractual commitments and lacked the confidence of achieving the business case for outsourcing those services to a third party.

Management decided to conduct an independent study for assessing the current state of the contract. We evaluated the organization’s current contract and developed a review program that covers all aspects of the relationship – contract administration, performance, financial, compliance & risk and governance.  A detailed study was conducted of the contract structure, terms and conditions, existing processes responsible for monitoring performance & compliance to contractual commitments.

The review identified instances of leakages across the lifecycle of the contract – ambiguous critical contract clauses , impact and reasons for change orders/ amendments  not adequately reviewed before execution, service levels not properly baselined and monitored, financial commitments (investments, discounts/ rebates) and critical conditions of the contracts  not being fulfilled by the vendor, invoices not adequately reviewed before processing, and penalties/ service credits not computed and adjusted.

The outcome of this study helped the management to identify control gaps in the contract management across people, process and technology and direct & tangible cost savings/ renegotiation opportunities. Together with the management, we strengthened the existing contract management processes, and built & implemented a robust/ consistent contract governance framework.

For organizations, there is no better way to assess the quality of the current state of contract management processes and systems than through an objective and independent study. This study can help organizations identify opportunities to achieve savings, recover costs and enhance value from their existing contracts (in addition to overall improvements to the contract management function across people, process, and technology).

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Will Asset Protection Trusts Protect Assets From Medicaid Agencies?

25. September 2018 11:40 by Selina Stewart in

There are several types of trusts that are useful asset protection tools.  Asset protection trusts include irrevocable trusts with spendthrift provisions, offshore trusts, and domestic asset protection trusts available in some states (other than Florida).   I have been asked from time to time whether an asset protection trust will protect assets from being considered in an application for Medicaid eligibility.  The question is whether one can remove their assets from Medicaid’s asset ceiling (about $2,000) by transferring their assets to a trust that does protect assets from potential judgment creditors.

Medicaid eligibility will count all assets held in a trust in which the Medicaid applicant has, or could have any beneficial interest. The definition is very broad and encompasses contingent future interests or reversion interest.  If the Medicaid agency can image the applicant getting some benefit, any amount of benefit, under any circumstances all assets in the trust will be considered to belong to the Medicaid applicant. Spendthrift trust provisions that effectively protect the beneficiary’s trust interest from civil creditors do not shield a trust from Medicaid analysis.

There are some trusts that a Medicaid applicant can create to protect his income from being taken to pay for his care in a skilled nursing home while he is receiving Medicaid benefits. These trusts will permit the applicant to fund the trust with any income over Medicaid’s income ceilings and use the trust income for the applicant’s benefit while he is getting Medicaid benefits. Any income or assets in trust at the time of the applicant’s death will be taken by the Medicaid agency to reimburse the state for the cost of care.

The provisions of these Medicaid Trusts (also called “Miller Trusts”) are substantially unlike the provisions of trusts designed for asset protection. Using any type of asset protection trust form to protect assets from Medicaid agencies may deprive the applicant of money used to maintain a comfortable standard of living in a nursing home.

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How an Experienced Tax Professional Can Help Reduce Your Debt

3. September 2018 17:27 by Junita Jackson in

Oftentimes, we think we know what’s best for us when it comes to handling our own finances. The truth of the matter is everyone could use a little help, especially when tax season rolls around.

Many people who are in debt might not see how a tax professional can help them. After all, a tax professional deals in all things that are related to taxes, right? Well, that actually depends on what kind of tax professional you hire.

The Service You Might Be Used To

There are many storefront tax services that specialize in the “quick and dirty” annual tax filing. Nothing more. Nothing less. If what they’ve filed for you renders an outcome that’s other than a refund, then you are essentially on your own to work out some type of payment arrangement.

The Type of Service You Should Get Used To

The professionals at Success Tax Relief are invested in our clients. We do what we can to help our clients take care of their annual filing and see to it that they receive their refund as quick as possible. If for some reason, they end up owing the Internal Revenue Service (IRS), then we will also assist them with the means to making the payment. Oftentimes, the amount owed can be way more than taxpayers can afford. In cases like this, we communicate with the IRS on our client’s behalf to arrange an affordable monthly installment plan.

It can be said that other tax professionals do the exact same thing, but what sets Success Tax Relief apart from others is that we provide debt relief counseling services. We understand that when it comes to annual filings, sometimes you get a refund and sometimes you owe. It’s typically the owing part that can often get out of hand.

Managing Your IRS Payments

If you’re late with your filing or payments to the IRS, interests and penalty fees accrue, and if you’re already having issues keeping up with the payments, tacking on more money onto the existing debt can weigh you down. Because the consequences of a neglected tax payment are dire, this will certainly be the first debt that you want to pay. The problem is, other debts often get neglected because there’s only so much money to go around.

This is Where MaxFinancialss Tax Relief Can Help

The professionals at MaxFinancials Tax Relief have over three decades of experience helping taxpayers like you stretch the dollar so that you’re taking care of all of your debt. We understand that many people who find themselves in debt are having problems managing it. This is usually the underlying problem and we have a service to specifically address just this.

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