Gary Field’s Views: Concerns About Michigan’s Economic Future – The Next Big Economic Crisis

Dick Morris targets not only the United States, but also the State of Michigan in particular, when he indicates that we aren’t far removed from the crushing wave of the economic tsunami now sweeping over Greece and other members of the EU. To those of us that have resided in Michigan most of our lives and watched the financial mismanagement that comes out of Lansing, financial collapse has always seemed inevitable. Though it seemingly took forever for the auto industry to melt down because of “Bad Management” it ultimately did and the State’s economic crisis isn’t far behind.

President Obama’s goal of “spending this country’s way to wealth” has failed miserably and can only add to the “EU effect” here in the United States. Locally we can expect a similar effect as our soon to be Ex Governor’s management style has been equally irresponsible.

Taking this to the private sector for a minute, when a client of ours leverages by borrowing so that they can continue to invest in the business, if the return on investment which is driven by sales isn’t there, the client must cut costs, including payroll and related benefits, in order to survive. The client simply cannot “deficit spend its way to prosperity” forever. Its bank, at some point, will stop “papering over” the deficits with more money and the client will ultimately be bankrupt. When there is no longer an adequate return on investment and as a result positive cash flow, the private sector does what it must to survive; manage the expense side of the equation. Our clients understand “The only way they can take you out of the game is if you run out of cash.” State of Michigan under its current leadership has been more about taxing and spending versus cutting.

In addition to the federal government funding which has been used to feed the insatiable appetite of the unions in this state, the other source of funding which is drying up is debt sold by the State and its Municipalities. More and more, sophisticated investors are less and less inclined to buy what is quickly becoming regarded as junk bonds from either source. Case in point: Two months ago we were charged with investing one million dollars for a client in Michigan Municipals. However, the market has become so fragile that the money remains in cash as we look to a safer venue.

Morris points out, just as Athens has turned to Berlin, bankrupt states like Michigan will turn to the federal government to guarantee their debt. That my friends will be a pivotal point in this great country’s future in that it will determine whether we become financially responsible going forward by just saying NO or continue as we have recklessly “spending our way to wealth.”

Morris is literally on the money on his analysis and recommendations regarding what the next steps should be and what they mean to the United States of America. This is an excellent piece well worth the read.

To read the entire article please click the following link The Next Big Economic Crisis.

This article was written by Gary Field, CPA at Numerico, PC. Click here to view Numerico’s website.

What To Do If You Receive An IRS Notice

The most important thing is that you do not panic or ignore the notice. Most of these notices are for simple things like mathematical errors or even for items that you missed on your return that now may result in a favorable outcome to you.

The IRS has an excellent list of things you should know about when receiving a notice in IRS Summer Tax Tip 2009-22.

Item 8 from the list is extremely important. In practice there have been numerous times that clients have had to send in the requested items two or even three times due to paperwork being misplaced at the IRS, a different agent being assigned or that the case has been transferred to a different office.

You should also send any response to a notice via certified mail to prove that you have submitted your response by the specified timeline in the notice.

To access the list please click the following link from the IRS’ website. IRS Tax Tip 2009-22

This article was written by Jay Kossen, CPA at Numerico, PC. Click here to view Numerico’s website.

Forbes.com Article From Stephen J. Dunn

Click here to access a new article from our Tax Attorney Stephen Dunn. The article discusses IRS Audits.

When Cash Is Tight

I recently found an interesting article on Open Forum form Laura Rich titled “Paying Your Small Business Bills”

Her article provided a wide range of ideas between renegotiating trade terms, contacting your vendors, to squeezing your customers for payment.

In practice I have found that it is always better to communicate with your vendors when your business is having cash flow problems before they contact you. They are more willing to work with you if you contact them first. After all they want your business for the long-term.

Contacting them first not only shows that you are interested in a long-term relationship with your vendor, but it also lets them know that you take seriously your responsibility to pay your bills.

To read the rest of her article click the following link Paying Your (Small Business) Bills.

This article was written by Jay Kossen, CPA at Numerico, PC. Click here to view Numerico’s website.

Employee Time Theft – You Can’t Afford To Ignore It

Do you have an employee who is always late? One who makes or receives personal phone calls daily or one who sneaks out a couple of minutes early on a regular basis? What about an associate that is on their cell phone texting through out the day or who clicks off the computer screen as soon as you walk into their office? If you do you have an employee that is stealing time pure and simple.

Have you ever stopped to consider what these types of employee time theft are costing you? An employee who robs you of 5 minutes per day 5 days per week is stealing the equivalent of approximately 2.8 days per year assuming an 8 hour work day.

If you pay an employee $15 an hour and that employee is stealing 2.8 days per year, it’s costing you $396 per year considering a factor for payroll taxes and employee fringe benefits.

If your employee steals an hour a day 5 days per week the cost of the theft has just skyrocketed to 33 days per year and $4,680 again considering a factor for payroll taxes and employee fringe benefits.

How can you control expensive employee time theft? Clearly state policies in the personnel guide and have employees sign it to be sure they have read the guide and understand the policies. The guide should include policies on personal phone calls, cell phone use, internet use and working hours as well as policy relating to tardiness.

Let your employees know how much you are willing to tolerate—you can disallow personal phone calls except in the case of an emergency. Talk to “tardiness” offenders—tell them their pay will be docked or worse—remind them that everyone in the office is a professional, and professionals don’t punch a time clock. Make it clear that cell phone use of any sort or “surfing the net” will not be tolerated UNLESS it is business related.

The key is to be aware of the situation, bring it to the employee’s attention, specify the ramifications should they fail to modify their activities, and consistently enforce the penalty you have set. If it’s clearly a matter of policy, you take the emotion out of your reaction and simply make a good business decision.

This article was written by Gary Field, CPA at Numerico, PC. Click here to view Numerico’s website.

The Habits of Effective Money Managers

Someone once told me that character, an attribute that seems to be passé (sadly so), is the sum total of all of our habits as of a particular point in time. Of course that sum could be comprised of good as well as bad habits. Steve Covey wrote a terrific book several years ago entitled “The Seven Habits of Highly Effective People” which also espoused the importance of their development.

Today’s focus is the habits of effective money managers which we will number at five.

Habit 1: Effective money managers prepare a 1 to 3 year plan to guide the day-to-day activities. Now I am not talking about something the length of “War & Peace”, rather something that outlines your objectives by business function, the activities that will help you accomplish those objectives, prioritized in some fashion and with specific deadlines for completion. The key is it has to be in writing to help you crystallize your thinking and it needs to be flexible.

Habit 2: Effective money managers are realistic about the prospects of their business. How do you think most business owner characterize the prospects for their businesses? You have three choices; 1) Their view is generally optimistic; 2) Their view is generally realistic; or 3) Their view is generally pessimistic? If you picked door number one you win the prize. Most entrepreneurial types are woefully optimistic. Like we tell our clients it’s ok to assume the best but we must prepare for the worst because it will present itself.

Habit 3: Effective money managers know where they stand financially at all times, including having a clear picture of cash flow. Another question for you business owners; when do you go to the bank to borrow? Two choices; 1) when you need the money? Or 2) when you don’t need the money? If your answer is door number one you are disqualified! Answer honestly now, do any of you believe that banks are in the business of lending you money when you need it? This is an industry that took billions of dollars in TARP money from the federal government, that was intended to stimulate the economy, and hoarded it. For all intents and purposes commercial “lenders” kept the funds in their coffers which did nothing to help small and medium sized businesses or the economy in general. This is a glowing example that banks really don’t care much about a business owner’s cash flow problems and as a result you must be aware and anticipate the needs of your business. I still remember a great quote (though not the author) which went “The only way they can take you out of the game is if you run out of cash.”

Habit 4: Effective money managers know exactly where business expenditures go. Most business owners have a top line fetish; as long as the trend line for sales is north bound then management ’s thinking is “we’re good”. Wrong!!!! As indicated in our October 12, 2009 Blog entitled “Waste not, Want Not” (Click here to read) a focus on cost cutting will do more to drive the bottom line. While the thought of digging into every expense item in your operating statement might cause you to hyperventilate, I would suggest that’s not necessary. A more efficient approach is to apply the Pareto Principle; “80 percent of your expenses come from 20% of the line items in your operating statement.” For example, if there are 25 operating expense items in your income statement then by simply focusing on the 5 largest you will have addressed 80% of the money that goes out the door each year. This is an exercise that is well worth the investment of your time.

Habit 5: Effective money managers make no major decision without carefully considering all of the consequences. When I was growing up Dad had two rules; Rule 1) Don’t ever talk back to your mother and Rule 2) Don’t ever lay a hand on your sister. If I broke either rule, I had to pick myself up off the floor, compliments of my father. Those were consequences I clearly understood. As business owners, while the consequences might not be as physically painful, there will be consequences for bad decisions. As an advisor to businesses for over 30 years, I can relate story after story of bad choices made by our client base. More often than not had the clients invested the time to make an informed decision rather then force the timing, the results would have been better. In many instances the decision making process (or not) meant the success or failure of many case studies.

So there you have it and while developing these like any other habits wont guarantee a business owners success, they certainly wont hurt their prospects either. I am reminded of another quote regarding character which, as we know, is a composite of our habits. This quote, however, has a little more prophetic tone; “Sow a thought, reap and action; sow and action, reap a habit; sow a habit reap a character; sow a character reap a destiny.”

This article was written by Gary Field, CPA at Numerico, PC. Click here to view Numerico’s website.