Finance for Non-Financial Managers

Should the foundations do more?

In a well written article published today in the Wall Street Journal is this quote: "Several academics have estimated that not more than 3% to 5% of all foundation money goes to organizations serving the poor, people of color, women and children at risk, gays/lesbians, disabled and troubled youth—almost 50% of the American population."

The article is titled "What's Wrong With Charitable Giving—and How to Fix It," and every board member or staff member of a nonprofit organization should read this and form your own opinion about it. The premise is that nine changes in the way foundations operate could make a huge difference in today's challenging environmentfor nonprofits. For example, the author suggests that government can best help troubled nonprofits by simply raising the minimum level of distributions that foundations must distribute every year from 5% to 6%, freeing up perhaps $10 billion a year in additional grants. Some of the other ideas include changes in the process of awarding grants, precipitated by the contention that today the vast majority of grants go to universities and colleges, medical organizations, and arts and cultural institutions, Whether you believe the premise of this piece or not, this is "must read" stuff in my view.

And after reading it you should want to write to someone and express your opinions about it. That's what I plan to do. How about you?

As always, your thoughts and feedback are appreciated.

My new book is available for pre-publication ordering!

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:

http://www.google.com/url?sa=X&q=http://www.corwinpress.com/authorDetails.nav%3FcontribId%3D644469&ct=ga&cd=QAz4i4QzZzs&usg=AFQjCNEXBsvS4BPHD0NFgBoymhGQadLG1Q

As always, your comments are welcome.

Tax planning time - again???

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.

Watch out for Dun & Bradstreet sales tactics!

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.”

The bailout - what goes around comes around, and that can be good!

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?

As always I welcome your comments.

Going to college? Make common sense choices.

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.

Chaos at the bank?

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.

Gene was quoted in a news article...

...as a result of an interview with Epoch Times, a New York-based print and online newspaper with offices in 30 countries and editions published in 17 languages. The interview was in response to the just published report from the US Bureau of Labor Statistics that productivity had risen at the fastest rate in 6 years. Gene discussed the effects of unemployment on productivity rates in the context of a recession. Read the entire piece at http://www.theepochtimes.com/n2/content/view/20873/.

As always, your comments are welcome .

How would you fare under the big banks stress test?

There was a lot of press in late February when the Obama administration announced stress test of the largest banks in the TARP program, to see if they were worthy of additional assistance. Today the press talk is about how much of the results of those tests will be made public, enabling the public to see which banks the government considers weak or strong. The key issue, of course, is the fate of those considered weak, once that information is known. But here’s a thought for you to consider: What if your company were subjected by your board of directors or your lenders to the same kind of stress test? How would the company fare if it had to operate in a market that was itself under deep stress?

Take the stress factors for the banks and adapt them to your business; it might look something like this:

Bank stress test factor	Your company stress test factor
The economy contracts by 3.3% in 2009 and stays that way through 2010. There will be less money moving around and less opportunity for buyers and sellers of just about everything, and less demand for loans from otherwise worthy customers.	Your revenues will drop 3.3% or more this year and stay flat for another year after that, while your fixed cost structure will stay, well, fixed.
Housing prices will fall another 22% in 2009. This will certainly result in increased delinquencies and foreclosures. Already there are signs that foreclosures will rise dramatically very soon.	Your customers’ balance sheets will contract by 22% from where they are today by the end of the year, beginning almost immediately. That means operating losses they will incur this year will wipe out much of their net worth.
Unemployment will rise to 8.9% this year and to 10.3% in 2010. This will hasten loan defaults, including credit cards and car loans, in addition to mortgage payments.	8.9% of your business customers will go out of business this year, or that same number of your consumer customers will have zero income before year end. That number will grow to 10.3% in 2010.

If you have a strategic plan in place, you know that this will impact your planning assumptions. Ask yourself:

·         How much impact will it have on you?

·         What could you do about it?

·         How long do you think it will impact you?

·         Do you have credit lines in place to support you through this period?

·         Are your reserves sufficient so that your existence is not challenged?

·         If you had to raise more money quickly, where would you go and what would be your story?

If you don’t have a strategic plan in place, all those questions become even more critical, and your ability to answer them effectively and position yourself for this year and next becomes even more at risk.

Now what?

As always, I welcome your comments.

Pay for performance - why don't they get it?

Last summer the Wall Street Journal ran an article reporting that US Airways had achieved the best on-time performance of all major airlines, after being the worst performer the previous year. As I re-read this item while researching my next book, a paragraph caught my eye. It read in part: "How can one airline with big congested hubs run on-time while other major carriers stumble? US Airways rallied its work force to focus on one goal ... and began offering financial incentives to workers for better service."

Duh!  

If a seasoned business reporter has to ask the question, how much harder must it be for CEOs who don't have the luxury of sitting back and surveying the landscape for others' best practices? Despite the best efforts of the researchers in this area, CEOs seem unwilling to believe that incentive pay is a valid tool for performance enhancement. This even though the record of American managers in guiding their employees to improve productivity through motivation or intimidation are mediocre at best.

Of course US Airways didn't achieve this most important milestone (at least in travelers' minds) by simply offering bonuses. They made changes in operating policies and practices, they upgraded equipment, and they improved the quality of their hiring practices. In the process the flying experience got better too - onboard annoyances got fixed more quickly because there were more mechanics around to do the work, for example. And motivational management practices encouraged employees to care more about their work - a message that was taken seriously because it was backed up with cash. Whether it's employee performance or a used car or a can of baked beans, you get what you pay for, and your pay practices tell everyone the kind of importance you place on performance and the level of performance you expect. 

So what kind of message are you sending to your employees? Go for the gold or go for the beans?

As always, your comments are welcome.