Month: July 2021

Recent Engagement: Turnaround to Avoid Bankruptcy

Recent Engagement:
Turnaround to Avoid Bankruptcy

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Why the client needed help:

In this engagement, a number of financial issues (i.e., incorrect revenue recognition, job costing, bad financial data, out-of-control overhead, etc.) had caused the company to find itself in a deep hole, heading towards bankruptcy – and the owner would also lose his house, which was bank collateral.

MyCFO was brought in to turn around the company and set it on a long-term course to profitability and success.

Our client, a construction contractor, had purchased a business which he subsequently found the previous owners had provided dubious sales and other financial data.  The company’s financial staff used different systems internally, thus producing inconsistent and inaccurate financial data.

Expenses were far beyond industry norms in certain categories, especially on overhead.  On the sales side, deposits for jobs were recognized as revenue, and eventually used to fund other customers’ projects; bother were severe errors that exacerbated problems.  It didn’t take long before a cash flow crisis arose and become increasingly severe.

Further, the prior company had a somewhat poor reputation, which required significant rebranding and related marketing expenditures.

A major issue was debt management.  The owner had taken out two loans, including a term loan to buy the business and a working capital line of credit.  Both were in violation of the loan agreements’ covenants and conditions.  The owner was on the verge of losing his house, which was provided as collateral with his continuing guaranty on the loans.

Further, due to the cash flow crisis, the owner had maxed out his American Express card.  The company’s largest vendor was also demanding payment on accounts payable that were far in arrears.

At the rate the business was going, it wouldn’t have been long until full collapse.

MyCFO’s work:

A critical item at the onset was bank negotiations, allowing for relaxed terms until the company got back on its feet, so that the working capital line could remain in place.

In addition, MyCFO negotiated acceptable payment terms with vendors, especially the largest, which allowed continued product procurement.

Detailed job costing systems were established.  This is a method of calculating the actual costs and revenues by “job,” allowing for profitability projections and reporting per job.

Expense controls were established.  To help our client manage them more effectively, MyCFO set up a “financial dashboard” which is a management tool that helps to track and analyze “key performance indicators (KPIs) to monitor financial health.  This allowed the client to track expenses, sales and profit, then make appropriate financial decisions.

Another investor was brought in to raise cash for working capital needs.  MyCFO negotiated terms and worked with an attorney to make certain the buy-in agreement was appropriate.

Results:

This engagement spanned about two and one-half years.  The first nine months were spent identifying and then resolving the key near-term issues, helping to keep the company afloat.  The next phase was building staff and systems for long-term success.  The last phase was transitioning MyCFO’s management to the company’s internal management and staff, so that the company could safely provide for itself over a prosperous future.

Need help?

Whether your business is in a dire financial position or simply wants to increase cash flow and profitability, MyCFO can help.  Contact us today!

Employee Retention Credit: Can You Qualify for Big Money?

richard warner

The Employee Retention Tax Credit (ERTC) is a fully refundable tax credit for employers, recently extended through the end of 2021.

Richard Warner, tax partner, has prepared a brief summary highlighting key facts of the ERTC:

  • Eligibility
  • Employee threshold count
  • Qualified wages plus insurance costs
  • ERTC eligibility when PPP loans have been received
  • How to claim the ERTC credit
  • Necessary documentation

Please read the summary, then contact Smith Dickson if you have any questions.

The Importance of a “Family Meeting” in Managing Your Estate 

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Planning your estate is more complicated than deciding “who gets what” – it should involve a more holistic approach to key aspects that ensure your wishes are implemented.  As such, an important but all-too-often overlooked step in the estate planning process is a “family meeting.”  This is often one of the final steps in the initial estate planning process. What is it and why is it important?

What is the purpose?

The main goal of a family meeting is to share information about your estate with family members. This can help to prevent surprises, should you become incapacitated or pass away, as well as to minimize disagreements and discord.

Typical objectives for the meeting include:

  • Clear communication
  • Transparency
  • Remove surprises about asset distribution
  • Explain roles and help family members understand responsibilities
  • Demonstrate that you are of sound mind when making your decisions
  • Healthcare directive choices can be clearly articulated
  • Deal with any conflict issues while you’re alive

Why do some avoid doing it?

For various reasons, some people want to avoid holding a family meeting.  Some of the excuses given include “It will be awkward” or “What if they get mad?” or “That is private, I don’t want to discuss it” or “Can’t we just let my beneficiaries find out after I die?”

You’ll need to decide whether it is best to hold a family meeting or not.  Overall, while it may be uncomfortable to talk about mortality, it is much nicer to deal with the discussion while you are in good health.

A grieving family doesn’t need a feud (or even worse, litigate). Unfortunately, this can easily occur if surprises happen when distributing an estate.  As such, even though it may seem daunting, it is typically best for your beneficiaries to hold a family meeting, so that you can be in charge, explain your wishes, and can clearly address any concerns.

Who participates?

Many ask their attorney to assist in running the meeting, because of his/her experience and expertise, as well as a third party can help keep things civil if disagreements arise.  It also benefits your family to become comfortable working with the attorney in advance of executing your final wishes.

You decide who to invite, depending on personal circumstances.  Typically it is beneficiaries, such as adult children or siblings, or if you have no family, close friends or other designated beneficiaries.  Another consideration is whether to invite in-laws of your children.    Overall, it is important to invite those that are important to meet your goals (e.g., clear communication, avoiding hurt feelings, etc.).

What is the agenda?

Keep in mind that family meetings don’t need to be delayed until you’re on your death bed, or held only once and never revisited.  Every situation is different.  For example, you may decide to hold a family meeting after your living trust and will are initially prepared, then years later circumstances change (e.g., second marriages, changed relationships, investment portfolio changes, etc.) which lead to the desire to have another family meeting to keep everyone updated.

Depending on your goals and family dynamics, here are some agenda items to consider:

  • Reasons for holding the meeting (i.e., clear communication of your wishes, avoid conflicts, etc.)
  • Importance of maintaining family relationships and taking care of each other
  • Your personal values, morals and ethics (and related impact on your final wishes)
  • Religious goals
  • Estate structure
  • Beneficiary designations
  • Selection of trustee/executor
  • Description of your assets
  • Planned distribution of assets (including spousal, children, charitable, etc.)
  • Special requests (e.g., sentimental items)
  • Potential changes prior to your passing (especially for asset distribution)
  • Personal choices
  • Health care needs
  • Healthcare directive
  • Funeral arrangements

Managing Your Affairs

Estate planning isn’t just about your final wishes. It’s also about making sure your family is provided for after you’re gone.  Giving careful thought, and action, to the entire estate planning process is critical to meeting your goals.  Mortensen & Reinheimer PC would be pleased to help you with your family meeting needs.  Visit our website for more information on estate planning services, or call Mortensen & Reinheimer, PC to set up a time to discuss your family meeting or other estate planning needs.

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About the author:
Tamsen R. Reinheimer, Attorney, is a Certified Specialist in Estate Planning, Trust & Probate Law (The State Bar of California Board of Legal Specialization). She has significant experience in all aspects of estate planning, trust administration, and probate. Contact Tamsen at tamsen@ocestateplanning.net.

What is a “cash flow crunch” and how can your company avoid it?

What is a “cash flow crunch”
and how can your company avoid it?

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Whether your business is rolling along at full speed or barely managing to hang on, a “cash flow crunch” can bring it to its knees in a very short time span.  In this article, we describe warning signs for a cash flow crunch and how MyCFO can help your business.

Newer businesses may find customers flowing through the doors, demand rising, inventory growing, staff getting trained – all good things, yet there is very little cash! Mature businesses can find that market or seasonal changes can bring about sudden, dramatic changes that have never been encountered – and cash is also scarce!

The phrase “cash is king” never seems more appropriate than at those times. If your business doesn’t have enough cash reserves or a sufficient working capital line of credit, it can go upside down in a hurry. A sudden, unexpected cash flow crunch can demolish an unprepared or mismanaged business.

What is a cash flow crunch?
Simply put, cash flow is the inflow and outflow of money from a business. It is necessary for your day-to-day operations, funding payroll, paying vendors, purchasing inventory and other operating costs.

“Positive cash flow” is when your business has more money coming in vs. going out; over the long-term, this is how value is created shareholders. “Negative cash flow,” is when more money is flowing out from the business in the form of accounts payable, debt and interest payments, payroll, rent and other expenses.

A “cash flow crunch” occurs when a condition of negative cash flow is substantial enough to impact operational functionality, either for a short or sustained period.

This is also known as a “working capital crisis” – working capital is the difference between a company’s current assets (e.g., cash, accounts receivable, inventories of raw materials and finished goods), and its current liabilities (e.g., accounts payable and debt payments).  The crisis occurs when this becomes negative vs. positive.

What causes it? What are the warning signs?
There are many causes for a cash flow crunch – and perhaps surprisingly, not all of them are what we might consider “bad!” Instead of being surprised, management can understand the warning signs of a potential cash flow problem and then prepare for or avoid them.

>> Check the “warning signs checklist” below and see if any of these are exhibiting themselves at your business:

Revenue issues:
• Low sales volume
• Rapidly expanding sales volume
• Market and seasonal fluctuations
• Allowing too many accounts to become past-due receivables.
• Reliance on receivables concentrations (i.e., big customers) who pay late.
• Offering too many customers delayed payment programs.

Expense items:
• Gross margins are too low (you’re paying too much for inventory or not charging enough)
• Slow moving, obsolete inventory
• Net margins are too low (operating costs are perhaps out of control)
• A long lead-time between raw materials purchases and finished goods.
• Losing out on discounts with suppliers and vendors
• Employees are not operating near maximum productivity.
• Plant or offices are too large, causing waste of resources.

Cash and debt concerns:
• Inadequate cash reserves
• Lack of sufficient working capital line of credit
• Over reliance on short-term debt to fund cash flow
• Funding fixed with short-term debt or current assets with long-term debt.

A cash flow crisis can be devastating. Unfortunately, entrepreneurs who have never encountered these problems get “taken by surprise, even when the business seems to be going great. It is a sad fact that such as crisis can cause a business to fail very quickly, finding itself in bankruptcy.

How to avoid or fix it?
Avoiding a cash flow crunch is obviously a lot easier than fixing it after it occurs. Planning for your working capital cycle is an essentially part of running a business, day-in and day-out. It should not be considered a measure only for times of crisis!

Fortunately, MyCFO can usually help your business in either situation (dire or day-to-day operations).   The professionals at MyCFO would be pleased to discuss how we can help your business in managing cash flow.  Contact us today for a free initial consultation!