My new book, "Financial Mastery for the Career Teacher" is in production, but the publisher has just announced its availability for pre-publication ordering for those who want to make sure they get one of the first copies off the press. Due out in April, this will be a great gift for your teacher friends as they wrap up the school year. To buy your copy or that gift, go to the Corwin Press website with your credit card. Here's the link:
As always, your comments are welcome.
We get asked on occasion by new clients to help with their taxes. We tell them we are good at calling in their CPAs to talk about taxes, and that's who they should turn to for help. We get funny looks sometimes, but it doesn't change our (lack of) interest in doing tax returns. We keep a carefully selected database of good CPA firms for that purpose. For example...
I just received a very good newsletter outlining some excellent points for this year's tax planning, based on a host of new rules, some of which are intended to help taxpayers pay less tax. Best of all it's written in English instead of accountant-ese. Called "Tax Planning Letter 2009" it's a publication of Gerber & Co., Inc., a Los Angeles CPA firm. I bet if you dropped a note to Selwyn Gerber, Managing Partner, he'd send you one. Write him at sg@gerberco.com and tell him it's my fault. But you'll appreciate the good advice in the letter, so it's worth the effort.
As always I welcome your comments.
That's a scary thought for any entrepreneur or business owner.
But there are good bankruptcies and bad bankruptcies, or rather companies that should consider filing and companies that would not be improved by filing. What's the difference? According to a study completed early this year by University of Utah researchers based on the study of over 500 actual bankruptcies, telling the difference is not hard.
Good bankruptcies are those that can rehabilitate a company by removing leverage from their balance sheet. In other words, if the company would be profitable without the demands of servicing debt, removing that debt can make the company whole again. The researchers called these companies "financially distressed." By contrast, a company that would still be losing money even without the leverage is still a loser, and a fundamental revision of its operating model is needed before removing debt will restore its viability. These companies were labelled "economically distressed." Not surprisingly, the study found that economically distressed companies lose about half of their assets in the bankruptcy process, are three times more likely to file again within three years and six times more likely to liquidate. Speaks volumes about cleaning up the shop before you clean up the debt. Also about hope for companies that are sound but deeply in debt.
Our own statistics tell us the highest bankruptcy statistics are yet to come for this recession, with more companies failing as the economy recovers and their competitors use dry powder to steal market share. It's safe to say those historically valid statistics are populated with companies the Utah researchers would label "economically distressed."
Have you taken a look around your company lately? Do you see dry powder or empty guns?
As always, your comments are welcome.
With the financial meltdown and its impact on financial institutions across the land, financial services companies are trying hard to boost revenues. Banks raised credit card rates and fees before the new law to remove abuses, and now we have the venerable credit ratings agency D&B looking to sell more of their services to the little people.
So, what do you do when a credit reporting agency like D&B calls you for information to “update your file?” If you’re like most small business executives, you talk to them because you want their report of your business to their subscribers to be accurate and favorable. Helps them and helps you. What if their inquiry methods include a subtle pitch for a product you don’t want to buy but don’t recognize right away that it’s part of the “update” package? If you’re like us you contact them as soon as you realize what has happened, preferably the next day, to inform them that you didn’t want to buy anything, you were simply providing information, and please cancel any order that D&B thinks they received.
Well, we did that, couldn’t get to a real person so we left a detailed message at the appropriate number. We got no call back and apparently no action taken in response to our call. Several more tries with the same result. Now we’re getting collection letters from the credit reporting agency for a service we don’t want or need. And when we finally saw their report it had material inaccuracies in it! What would you do? Ignore them and risk angering the reporting gods? Pay the bill to get them off your back, having gotten nothing of value in return?
As always, your comments are welcome.”
Short post - two parts actually. The first a quotation from some dead guy by the name of Henry Ford:
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"One who stops
advertising to save money
would stop a clock to save time."
The second is from someone who's still very much alive, me. We did a study more than a decade ago about business bankruptcies and the economy. The study revealed that more businesses failed after a recession has bottomed out than during the decline. My experience tells me that part is true. But why? Here's what I see:
When the economy is tanking, every company is conserving cash because they don't know how long it will last or how bad it will be. Solid companies and weak companies look alike to the casual observer (witness the recent collapse of the stock price of companies like GE and Caterpillar). However when the collapse has run its course and the economy begins to recover, the strong companies flex their economic muscles, begin using their cash reserves, and assert themselves at the expense of the weaker companies that have no cash reserves with which to compete. That's when you can tell the difference between strong companies and weak companies - by how they act coming out of a downturn. And one of the primary ways strong companies show their strength is by - you guessed it - advertising that strength. With new products, new marketing initiatives, new services, and new visibility.
So, the question you have to ask yourself is this: do you want to be the taker or giver of market share?
As always, I welcome your comments.
Our magnificent economic system is built on the concept that you should be rewarded for taking appropriate risk in business. The less risk you are willing to take, the less should be your reward. By contrast, the greater the risk you are willing to take, the greater should be the potential reward if it works out well. That's a fundamental concept behind a capitalist system, because it encourages the kinds of actions that produce growth and profits and it weeds out the kinds of actions that don't.
That's all good. Until it gets out of balance. That happens when the risk taker collects on the winners and looks to someone else to bail them out from the losers. Then it's not risk vs. reward any longer, it's reward vs. try again. With that little adjustment the capitalism gets tossed out the window and we switch to socialism when things don't work out. There is no incentive to manage the risk if there's no real downside. And without risk management you have chaos. And indeed that's what we got.
So with that little homily in economics, consider recent news stories of huge bonuses emerging again on Wall Street, and for the same kinds of actions that brought you 2008 - the Big Meltdown. Morgan Stanley just reported a large second quarter loss, still recovering but clearly surviving and rebuilding. Along with the loss, according to the Los Angeles Times, they announced $3.9 billion in bonuses and other compensation for the quarter - almost three quarters of their gross revenue for the quarter! That's gross REVENUE, not gross profit! And we're told this is a growing trend among Wall Street firms as they resume the pursuit of activities that can make a lot of money if they work out. And if they don't? Well, we can't let these firms fail, can we?
So here's the view from this corner: Maybe it IS time for the insurance company - the US government using your money in this case - to legislate some limitations on the actions it considers likely to increase the risk of it having to pay claims, just like every other insurance company does. Maybe it's time to limit the bonus plans that encourage unreasonable risk. Maybe these ultimate risk takers should find another line of work so we don't have to pay for their mistakes.
As always I welcome your comments.
This morning the Federal Deposit Insurance Corporation (FDIC) announced they were considering extending the guarantee program for certain types of corporate debt, dubbed the Temporary Liquidity Guarantee Program, into next year. Some will cry that our taxpayer money is at risk again when the government should be pulling in its intervention horns. However the article also had this quote:
"The FDIC collected more than $9 billion in fees from the program. Some of this money will be used to cover resolution costs associated with bank failures, the regulator said Wednesday."
As some suspected, including me, the government's investments and risk taking are beginning to pay off for taxpayers, if only in a small way so far (if you can call $8 billion "small"). Only time will tell what the real net cost of all the government programs will be when they're done closing banks, but it seems pretty certain that it will be less than the worst case scenario painted by some commentators. Yet some investment opportunities are still priced at worst case levels.
Is it time for you to consider taking a bit more risk with your investments?
USA Today's front page today trumpeted an article asking if college is really worth it during a recession. The poster child for the article was a young lady who had borrowed $80,000 to get a double major in journalism and anthropology. Then she went to work as an information technology recruiter. Huh? When she lost her job in the recession she was quoted as saying "...I have yet to see the complete value of my education." Do you think she might have missed the point of that education?
Parents, you've got to give your kids some guidance here if they can't find the common sense to make the right choices on their own. If your child wants to get a degree in anthropology, satisfy yourself that they really want to work in an anthropoligy-related field. If the reason for their choices is to have enough time to work the fraternity/sorority circuit, it's time to exercise your greater wisdom if not your parental authority. Encourage your kids to choose majors that make economic sense if they're going to have to earn a living when they get out. If anthropology really sounds appealing to them but the demand for anthropologists is dicey, suggest they take elective courses in that field but pick a major that will support them in building a career.
These are the kinds of decisions that you have to help your kids make. If they didn't get the insight from watching you guide the family over the past 15 years or so, here's a second chance. Don't let your kids mortgage their future on whimsical choices. If the economy has taught us nothing else, it has shown us that financial choices have consequences, and bad financial choices have bad consequences. Don't let that happen to your child.
As always I welcome your comments.
We’re led to believe the big banks have their act together and are systematically solving their real estate financing problems. Yet evidence suggests they may be scrambling behind the scenes to avoid being overwhelmed by the challenge. One attempted refinance by a credible borrower gives a hint at the degree of disorganization that may be behind the mask of reassurances. An officer and 50% shareholder of a well established, 35-year old small business applied for a home equity line of credit to Wells Fargo (WFC), the bank that carried his first mortgage. What followed over the next 3 months could make you laugh or cry:
· His request was denied within 24 hours because of incorrect assumptions by an underwriter who didn't take the time to call and ask.
· His contact at the bank admitted that he didn’t understand much of the information being requested (and soon no longer worked for the bank).
· The borrower was told his loan request had been assigned to the bank’s (higher cost) finance division and his credit record was again pulled by them.
· His request was reopened and approved 3 days later – by the bank, not the finance division.
· He received a checkbook and debit card for his new account.
· He was told his beach community property needed more flood insurance (which he purchased, despite the fact that there had never been a flood in the area).
· His application was denied again because his company had lost money 3 years ago, so his salary that year didn’t count as income. True story, I couldn't make this stuff up.
· He now reports getting daily calls, and evening calls, from the finance division of the bank.
The would-be borrower in this case was not in any difficulty, was making monthly payments on time, and will be fine without the line of credit. But what if he really needed the money? What about all the other borrowers that may really need help? Is this the way we can expect our banks to perform during the recovery? Something to think about if you’re looking for a new bank or a new loan. The bank declined to comment for this post, except to suggest they might be willing to reconsider yet again.
As always I welcome your comments.
Finance for Non-financial Managers
Finance for Administrative Assistants
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