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Casual Articles - Don't Let Tax Strategies Ruin Your Business Growth Prospects, Tips From a Banker
We are all out there looking for the same thing right? We want the American dream. We want the simple luxuries that having money affords. We want to be able to support our families from the comfort of our homes. But when we go to pursue it, it all seems like so much smoke and mirrors. How will you find the best home based business?Finding the best home based business really isn't just a pipe dream. People are out there doing it every day. The problem comes in the way the products are marketed. The product ads are telling people that they will get rich overnight; that is not the reality of
In more sophisticated grading systems the better
Till the mid 20 century, most organizations used to take a static view about their organizational structures. A view dictated by the top players and past experiences in the industry; a view that had little significance and offered even lesser room for improvement, if any. The organizations were used to have a vertical hierarchy and centralized control with mechanistic structure. The era was marked with inefficient operations, delayed processing, de-motivated employees and information loss that proved to be critical for many organizations. Most organizations were neither aware of nor realized the
Banks operate in a highly regulated system where they must conform to the standards of the regulatory bodies. These standards require them to assess risk in a pretty standard way, relying on financial statements prepared by the borrower or an accountant. So a bank will create a Loan Grading System or Policy which conforms to those requirements.
The three major factors in assessing loan risk are: Cash Flow, Liquidity and Leverage. Trends in these factors are important as well.
Cash Flow is calculated in a simple way and then there are more complex ways to calculate cash flow. We will only discuss the simple way. A bank will determine "Cash Flow Available for Debt Service" according to this formula. Pretax Net Income, plus Depreciation Expense, Plus Interest Expense, less Federal Income Taxes or in the case of different business types, Owner Withdrawals (required to pay income taxes personally on the business income).
This Cash Flow will then be compared to the Annual Debt Service of the business to calculate a Debt Service Coverage ratio. Normally a bank will want a minimum of 1.2:1. If this is the case and the balance sheet is healthy the loan will be considered a "Pass" and the bank will not be required to set aside additional Capital or Loan Loss Reserves against that loan. If the Debt Service Coverage is less than 1:1 the loan will often be "Classified" and will become a problem for the bank.
In more sophisticated grading systems the better
These rules must be followed and learned by each organization manager and employer as their strict and common regulation would definitely lead organization to success. Organizational structure defines the structure of groups operating within an organization, be it an institution, government or military, firm or company.As far as the innovative technologies are concerned, these have greatly affected the mobility of an organization elements allowing roaming inside the office and mobility outside the office without losing valuable information. Wireless LANs allow mobility within the organizat
The three major factors in assessing loan risk are: Cash Flow, Liquidity and Leverage. Trends in these factors are important as well.
Cash Flow is calculated in a simple way and then there are more complex ways to calculate cash flow. We will only discuss the simple way. A bank will determine "Cash Flow Available for Debt Service" according to this formula. Pretax Net Income, plus Depreciation Expense, Plus Interest Expense, less Federal Income Taxes or in the case of different business types, Owner Withdrawals (required to pay income taxes personally on the business income).
This Cash Flow will then be compared to the Annual Debt Service of the business to calculate a Debt Service Coverage ratio. Normally a bank will want a minimum of 1.2:1. If this is the case and the balance sheet is healthy the loan will be considered a "Pass" and the bank will not be required to set aside additional Capital or Loan Loss Reserves against that loan. If the Debt Service Coverage is less than 1:1 the loan will often be "Classified" and will become a problem for the bank.
In more sophisticated grading systems the better
Many companies find payroll to be monotonous and taxing. This is so because of the many government authorities– federal, state and local-- who tax payrolls in America, plus the numerous unions, banks and credit unions, and health insurance plans that people can barely keep up with. Online payroll services help eliminate the stress and confusion related to payroll processing. One of the best benefits of submitting payroll online is the speed, precision and safety of the process.Submitting payroll was never made easier or, in some instances, even fun. Welcome to the world of online accounti
Cash Flow is calculated in a simple way and then there are more complex ways to calculate cash flow. We will only discuss the simple way. A bank will determine "Cash Flow Available for Debt Service" according to this formula. Pretax Net Income, plus Depreciation Expense, Plus Interest Expense, less Federal Income Taxes or in the case of different business types, Owner Withdrawals (required to pay income taxes personally on the business income).
This Cash Flow will then be compared to the Annual Debt Service of the business to calculate a Debt Service Coverage ratio. Normally a bank will want a minimum of 1.2:1. If this is the case and the balance sheet is healthy the loan will be considered a "Pass" and the bank will not be required to set aside additional Capital or Loan Loss Reserves against that loan. If the Debt Service Coverage is less than 1:1 the loan will often be "Classified" and will become a problem for the bank.
In more sophisticated grading systems the better
If you are like everyone else then increasing fuel prices are probably affecting you personally. Yet if you are opening a dollar store there are others things to examine other than the personal impact that higher fuel prices put on you and your lifestyle. You also need to consider the impact that higher fuel prices are having or will have on your customers and your business.As fuel prices continue to climb, what are the impacts within the marketplace. How are wholesale prices being affected? What will that extra overhead mean to existing customers? What about potential new customers that m
This Cash Flow will then be compared to the Annual Debt Service of the business to calculate a Debt Service Coverage ratio. Normally a bank will want a minimum of 1.2:1. If this is the case and the balance sheet is healthy the loan will be considered a "Pass" and the bank will not be required to set aside additional Capital or Loan Loss Reserves against that loan. If the Debt Service Coverage is less than 1:1 the loan will often be "Classified" and will become a problem for the bank.
In more sophisticated grading systems the better
Much of the business advice from male business gurus doesn’t quite cut it for women entrepreneurs. These gurus haven’t figured out how they advice is different for women. Plus, they’ve left out some parts all together!I’ve come to this conclusion after being a Corporate America drop out and starting my own business. I realized there was much to learn about building a business so started to seek out the knowledge and understanding I needed through books, seminars, teleseminars, and networking.Over time what I observed is that the conversations I was having with women entrepreneurs
In more sophisticated grading systems the better the financial ratios, the better the risk grade even within "Pass" categories. The bank will be able to set aside less capital against these loans and will therefore be able to price them lower and earn the same Return on Equity.
There is no problem when a business owner uses accelerated depreciation to reduce Net Income and lower the tax burden. The problems for the bank crop up when the owner decides to:
1. Pay high salaries or bonuses at year end to reduce net income
2. Write off inventory or accounts receivable that are still collectable in order to reduce net income
3. Not report revenues at year and and carry them over into the following year by not depositing checks that have come in.
4 Prepaying expenses for the following year without accruing them as an asset (Prepaids)
5. Otherwise make accounting entries to reduce Net Income to a level that is not reflective of the true economic performance of the business.
Some of these strategies may create problems with the IRS at some future date as well.
The impact on the bank is that the Cash Flow Available For Debt Service number will drop suddenly (compared to interim statements), the Debt Service Coverage Ratio may go negative, and the Trends will be negative. The borrower may lose access to credit or have to borrow on more restrictive or more expensive terms. This may restrict the growth prospects of the business and create
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