Do You Know a Fiduciary When You See One?
Posted by Janet Thomerson, CPA, RPA
In the field of employee benefit plan audits, we often encounter clients who aren't aware of that they are a fiduciary with respect to their sponsored plan. We have even come across the situation, more than once, when a named fiduciary wasn't even aware that they were "named" and therefore had personal liability. Plansponsor.com offers a simple look into what a fiduciary is and what you should know about being one. Read more >
http://www.plansponsor.com/OpinionsArticle.aspx?Id=4294984216
Are Target Date Funds Really on Target?
Posted by Janet Thomerson, CPA, RPA
Most retirement plans offer target date funds ("TDFs") as an investment option. Plan Sponsors have offered them as an easy solution to providing participants with a mixed investment option based upon retirement dates in the future or as a qualified default investment option when a participant doesn’t elect what investments they want. However, what once seemed a viable investment option has recently come under scrutiny given the great losses in the market during the last few years. I recently read an article on Reish.com that presents more details about TDFs. Read more >
Is Your 401(k) Properly Bonded?
Posted by Janet Thomerson, CPA, RPA
According to an article I recently read on Reish.com, the Employee Retirement Income Security Act of 1974 (“ERISA”), Title 1, Section 412 requires that every fiduciary and every person who handles funds or other property of retirement and welfare plans be bonded. Read more >
http://www.reish.com/publications/article_detail.cfm?ARTICLEID=942
New Jobs Credit for Small Businesses
Posted by Stacy Hitt, CPA
In an earnest effort to create jobs, California is implementing a new jobs tax credit of $3,000. A business qualifies for the credit if it begins the tax year with twenty or less employees, and has a net increase of qualified full-time employees compared to the number of full-time employees in the preceding tax year.
As of June 12, 2010, only about $26.4 million of the $400 million alloted for the credit has been claimed on 2009 tax returns. As such, it seems likely that funds will be available for taxpayers looking to claim the credit in 2010.
California is granting a credit for each additional full-time employee hired. If a business hires four new full-time employees, it may be eligible for four credits.
There are additional benefits that accompany this credit:
- The credit is not subject to the normal 50% limitation for California tax credits.
- In the event that the credit cannot be utilized in the current tax year, it can be carried forward for eight years.
However, the credit is not available for any employees qualified in an enterprise zone, manufacturing enhancement area, local agency military base recovery area, or whose wages are included in calculating another credit.
This new jobs tax credit can quickly provide significant tax savings for small businesses, but the amount of credits California is granting is limited.
Cash Flow Improvement Strategy #4
Posted by Jeremy Scarbury
As discussed in prior posts, the cycle cash conversion consists of accounts receivable days, accounts payable days, and inventory days. All three of these items are equally important in cash flow management, but there is one that is different from the others in a very significant way. Accounts payable days and inventory days can be managed simply by making changes within a company. For instance, a company can take a few days longer to pay its vendors in order to increase accounts payable days or keep lower inventory balances to decrease its inventory days. The accounts receivable turnover, on the other hand, is the only one of the three parts of the cash conversion cycle that hinges directly upon the actions of outside parties, a company’s customers. It is this dependency that encumbers a business owner’s ability to effectively manage the accounts receivable portion of the cash conversion cycle. Therefore, this week’s cash flow improvement tip focuses on creating incentives for faster payment from customers, in order to relieve the burden of dependency on the actions of outside parties.
Although a company may have a laundry list of great customers who pay their account balance after 20 or 30 days, a large benefit is to be realized from those same customers paying in the time frame of 10 or 20 days from the date of purchase. The question is: How does a business owner persuade a customer to part ways with precious cash sooner, rather than later? The answer lies in payment incentives. Offering small discounts to customers as a benefit of early payment may reduce the time a company takes to collect its receivables and increase available cash for covering day-to-day operating costs.
Many companies competing in industry today use tactics such as cash discounts to persuade their customers to pay faster. For instance, one company might offer a 3% discount for an up-front cash payment. Another company might give customers payments terms of 2%/10 n/30. This expression means that the customer will receive a 2% discount on the purchase if the accounts receivable balance is paid within ten days, if not, the balance is due within 30 days. Using the sample terms above, if every customer took advantage of the discount, the company‘s accounts receivable days would decrease by 67%, putting a huge dent in the total cash conversion cycle. Obviously, not all customers will take advantage of payments incentives, but the benefit to be realized from the ones that do will surely outweigh the cost of the small discount.
In addition to offering early payment discounts, another way to take accounts receivable turnover into your own hands is to bill customers more quickly. Often, companies take 3 to 7 days from the date an order is shipped to actually bill the customer for that purchase. Lag time between the time of purchase and the time of billing creates unnecessary increases in the cash conversion cycle. Focusing efforts toward a quicker billing process, even if it means saving only one or two days per order, will have a profound effect on available cash.
In short, accounts receivable turnover is arguably the most difficult part of the cash conversion cycle to manage. However, offering small early payment discounts and streamlining billing processes will offer increased leverage over the actions of customers, freeing up cash for other financial opportunities.
Click here to read Strategy #1
Department of Labor Issues New Rules on Fee Disclosure
Posted by Calvin Hedman, CPA, CM&AA
According to an article I recently read on PlanSponsor.com, the Department of Labor has released its interim final rule on fee disclosure, effective July 16, 2011. Read More >
http://www.plansponsor.com/dol_issues_new_rules_on_fee_disclosure.aspx
Has Your 401(k) or 403(b) Plan Become a Forgotten Step-Child?
Posted by Calvin Hedman, CPA, CM&AA
With two weeks remaining until the July 31st original filing deadline (yes – don’t panic, there is a 2 ½ month extension available), we are surprised by the number of plans that have not selected their plan auditor or started their audit process. We are finding that many plan sponsors have reduced their workforce during the last two years and as a result, the audit engagements are being pushed back to a later date since the remaining employees are spread thin handling the workload. Most plan sponsors don’t focus on their employee benefit plan audits until they have wrapped up their corporate financial statements and tax returns. With fewer personnel to handle those engagements, their EBP audit engagement becomes the forgotten step-child.
Also, many plan sponsors wait until they have everything completed before starting the audit process – further delaying the process. Our advice to plan sponsors is to start the process early, even if it is with a portion of the requested data. We routinely ask our clients to send in the information as it becomes available (such as year-end payroll information with the related census and the custodian’s “audit package”, once they are notified that it is completed). Otherwise, the entire process gets compressed too close to the deadline and if an issue or missing information arises, the audit and Form 5500 filing may not meet the extended due date.
Cash Flow Improvement Strategy #3
Posted by Jeremy Scarbury
This week's tip for cash flow improvement focuses on the largest single contribution to the Cash Conversion Cycle, inventory days. Remember, the inventory days metric is expressed as Cost of Goods Sold divided by Average Inventory. That being said, the third tip for cash flow improvement is to keep inventory balances as low as possible.
One of the largest drains on cash flow for any non-service entity is inventory overstock. Inventory is often the single largest line item present on a company’s balance sheet, and every dollar of inventory sitting in the warehouse is a dollar that is not earning. In addition, in cases where financial borrowings are used to finance the purchase and carrying of inventory, overstock is an even larger burden on the cash conversion cycle, as cash is needed to pay for the interest on those borrowings.
The cost of carrying inventory is often one of the most overlooked aspects in middle market businesses today. This problem arises because most of these costs are not necessarily visible. The true cost of inventory is a unique animal, in that it consists primarily of opportunity costs. Opportunity costs are often described as the benefit forfeited when one option is chosen over another option. For example, a company has $1 million extra cash. Management has the choice of purchasing extra inventory or using the cash to fund a $1 million R&D project. The opportunity costs of purchasing the inventory are the tax credit from, the R&D activity and the undetermined value of products developed in the project.
Inventory overstock is riddled with other opportunity costs, the specifics of which depend on the organization and its operating environment. However, three common opportunity costs associated with an inventory overstock are increased interest expense, decreased investment opportunity, and most importantly for our purposes, an increased cash conversion cycle. As unsold inventory sits in a company’s warehouse, it limits the amount of available cash for the purchase and subsequent sale of more popular items or those with a more desirable gross margin. It is for this very reason that many companies, including Dell and Toyota, have invested billions of dollars to develop their “just-in-time” inventory systems to keep inventory balances as low as possible.
Middle market business owners probably don’t have the time or the available resources to develop a “just-in-time” system, but there are some steps that can be taken to help even the most cash strapped company. Be sure to identify the slow moving or obsolete inventory items, and sell them as quickly as possible, even if it means taking a small loss. The decrease in profit involved with selling inventory at cost is much less expensive than incurring debt to cover day to day operating expenses. Also, evaluate and consistently track re-order points to make sure that there is sufficient inventory on hand to fill orders, but not excess quantities. Finally, evaluate the lead time for inventory orders (the time it takes between sending out a purchase order and receiving it in the warehouse) to identify costly items that can be bought after a customer order is received.
IRS Invites Public Input on Expanded Reporting Requirements Provided for in Recent Healthcare Law
Posted by Jody Beard
In our May 25th e-newsletter article, Get Ready for Onerous New 1099 Reporting Rules, we addressed the challenges businesses might expect to face due to changes in annual Form 1099 reporting requirements scheduled to go into effect in 2012.
In a July 1 press release, the IRS announced that it is inviting public comment on how to most effectively carry out the law change, while minimizing the burdens this law change will impose on businesses.
To view the press release and/or for information on how to submit your comments to the IRS, click IRS Press Release or go to http://www.irs.gov/newsroom/article/0,,id=225029,00.html.
Avoid Corporate Filing Unit Scam – Don’t be Fooled by these Scams!
Posted by Kelly Jones
As the economy suffers, scam letters that we used to see a few times a year are now coming to us a few times a month. These letters come in various forms, but the most common are from the "Corporate Filing Unit" or the "Business Filings Division". These letters state that you will face stiff penalties if your company does not file a "Statement of Information" on time but, they will gladly file for you for a fee of $200-$300. The fact is, by the time you give them the information to fill out the form, you could have easily filled out the form yourself, and paid only $25 directly to the California Secretary of State. The form is very simple and can be completed by anyone with knowledge of the company.
Every domestic and registered foreign company in California must file a Statement of Information with the California Secretary of State within 90 days of filing its original Articles of Organization/Incorporation or Application of Registration. On the California Secretary of State website, http://www.sos.ca.gov/, registered companies and the date the registration originated can be viewed (just click on "Business Entities" then "Business Search" and type in the company's name). Corporations must file a Statement of Information every year within the same month they registered, and LLC's must file a Statement of Information every two years (same deadline).
The California Secretary of State typically mails a preprinted form to a registered company a few months before the company due date. The form includes the company's name and address. Scammers usually mail their intimidating letters several months before the actual form is due so that they can reach into your wallet before the legitimate form from the state tips you off.
There are similar scams for all kinds of filings, including the filing requirements for Fictitious Business Name Statements (filed with the County Registrar/Recorder every five years), and filings of Corporate Minutes (watch for scam letters from the "Annual Minutes Board"). There is no actual filing requirement for Corporate Minutes in California. However, corporations are required to keep copies of minutes from annual meetings of their directors and shareholders in order to maintain the protection of the corporate veil.
The bottom line, in this digital age, there is no reason to fall victim to these scams. If you receive a letter requesting money, simply look on the Internet for the name of the company/department or the name of the form and you will easily find all the information you need to avoid these rip-offs.
About Us
Hedman Partners is a full-service Certified Public Accounting (CPA) firm providing traditional audit, tax and consulting services to middle-market businesses, their owners and other high net worth individuals.
Recent Posts
- Do You Know a Fiduciary When You See One?
- Are Target Date Funds Really on Target?
- Is Your 401(k) Properly Bonded?
- New Jobs Credit for Small Businesses
- Cash Flow Improvement Strategy #4