Archive for May, 2014

Do Your Business Metrics Need an Oil Change?

Friday, May 23rd, 2014

Did you ever notice that little sticker in the upper left-hand corner of your windshield? The one that informs you your next service date for changing the oil and tire rotation. As you fire up the ignition, the fuel gauge is activated and the miles per gallon information is displayed. The on-board computer lets you know that the headlights are in the automatic position and the tires are properly inflated. The navigation system may even provide a weather update or a construction delay on the interstate. Within a matter of seconds of entering your vehicle, you have virtually all of the important metrics for your upcoming road trip.

Your business metrics and performance indicators should be as easy as locating your vehicle’s metrics. The metrics need to be meaningful to you and your team and used as a decision making tool in the day-to-day operations of the business. Many business owners and managers use daily and quarterly metrics more frequently than the monthly financial statements to run the day to day operations.

Business Metrics To Consider

Your business’s on-board computer can churn metric after metric and ratio after ratio. However, the quality of the metrics is far more important than the quantity. One recommendation is to identify four to six ratios that are unique to your business and industry and continue to study the trends on a daily or weekly basis. As a general rule, every business should consider metrics in the following areas:

  • Customer Metrics: How many new customers have you acquired over the last six months? How many customers have you lost? What is the average profit margin for each customer?
  • Cash Flow Metrics: These metrics should be designed to measure the company’s ability to meet obligations as they come due. For example: Is your inventory turning? How old are your accounts receivable?
  • Sales Metrics: A company should have sales metrics to measure sales and whether the sales are satisfactory for the company.
  • Employee Metrics: These metrics could be designed to measure how effectively the company is hiring and managing its employees.
  • Borrowing Metrics: This metric will measure how the company is effectively managing its debt. 

Once the metrics have been determined than a “windshield sticker” or dashboard can be affixed to your technology devices and reviewed by the management team on a regular basis. In addition, an industry scorecard can be developed to measure how the business compares to the industry.

Just like the oil in a car, the business metrics will need to be changed or enhanced on a regular basis to reflect changes in the economy and the business cycle.

Safe travels and be on the look-out for orange construction barrels and detours. Check your metrics!

Business Metrics Help

If you need help determine which business metrics are right for your business, contact Rea & Associates. Our team of Ohio business consultants can help you determine which business metrics are needed for the success and growth of your business.

Author: Dave Cain, CPA (Dublin office)

 

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What Should You Ask When Reviewing Your Life Insurance Policy?

Wednesday, May 21st, 2014

Throughout the past several months, I have written a couple of articles that explained the importance about why you should review your life insurance policy. It’s one of those things that we get for the “just in case” moment, and then sometimes forget about it. You’d be surprised how often unexpected slip-ups occur with life insurance policies. That’s why it’s so important to review your policy … to ensure that you’re not paying too much or too little for coverage, and to ensure that your policy is working properly for you.

All that said, here are six important questions you should ask when reviewing your life insurance policy:

Has my life situation or needs changed since I purchased my policy

Back in January, I wrote an article that outlined six common life changes that should cause you to stop and review your life insurance policy. These life changes ranged from the purchase of a new home to the changing of your job to the death of your spouse. If your life situation has changed since you originally purchased your policy, you’ll want to evaluate whether you need to increase or decrease coverage.

Have assumptions, such as interest rates, related to my policy change?

When you first purchased your life insurance policy, your insurer made some assumptions based on the market conditions at the time of your policy purchase. But as market conditions change, so can the assumptions your insurer originally made. By reviewing your policy, you’ll be able to determine if you need to make some policy adjustments that will help you receive the best benefits possible for your policy.

Do I have too much or too little life insurance coverage?

When you first took out a life insurance policy, you may have been making a lot less than you’re making now. If you’re making more now, you may find the need to increase your coverage. If you just said “Adios” to your youngest child who left your nest, you may find that you need less life insurance coverage now. It’s important to align your life insurance coverage with your needs and consider whether you’re paying for too much or too little of coverage.

Are my beneficiaries properly identified?

If you were to pass away while your life insurance policy is in effect, do you know who would receive the money? Many individuals name their spouses, children or parents as the beneficiaries. But if it’s been awhile since you purchased your policy, you might want to review it to ensure that your beneficiaries are properly identified. Make sure that your life insurance money will go to the individuals you really want it to go to.

How reliable is my insurer?

When you first purchased your life insurance policy, how well did you research the life insurance company you did business with? If you can’t recall spending a lot of time figuring out whether the company solid and reliable, you may want to evaluate the reliability of your insurer. The industry is rapidly changing, and with industry changes come concerns over whether certain insurers can continue to provide reliable service. If you question or are concerned about this, you’ll want to consider whether you need to change insurers.

Is my life insurance policy aligned with my estate/business plan?

Believe it or not, the lack of alignment between a person’s life insurance policy and their estate/business plan is seen more often than not. There are tax consequences for your beneficiaries if these two items don’t align, so in order to provide your beneficiaries with the maximum amount of money, ensure that your policy aligns with your estate/business plan.   

Life Insurance Review Help

Not sure where you and your life insurance policy stand? Don’t wait any longer. Get a review of your life insurance policy. Contact Rea & Associates, and we can help connect you to individuals who can help you with a life insurance review. You and your family will be glad you did.

Author: Lee Beall, CPA (Dublin office)

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What You Should Know Before Dipping Into Your 401(k)

Friday, May 16th, 2014

Got a 401(k) plan? Have you ever withdrawn money from your 401(k) account? If so, you’re part of the growing number of Americans using their 401(k) accounts to fund other areas of their lives. A recent Bloomberg article explains that more and more Americans are turning to their 401(k) accounts rather than to other means, such as a loan, to help cover any unexpected financial needs that come up.

Historically, Americans have used their homes as a source of additional money. According to the article, when home values rose, homeowners refinanced or took out second mortgages. But due to the housing collapse back in 2008, many homeowners don’t have these options anymore – so they turned to their 401(k) accounts. What many people don’t realize is that depending on their 401(k) plan, they could be penalized for either taking an early withdrawal and/or not putting that money back into their account in the appropriate amount of time.

Shocking 401(k) Withdrawal Statistics

The Bloomberg article cites an IRS report that states the agency collected $5.7 billion in withdrawal penalties in 2011. In other words, Americans withdrew nearly $57 billion from their retirement accounts. That’s $5.7 billion that the IRS would otherwise not have banked on receiving. And what’s the federal government doing with this “extra” income? Funding federal agencies and projects.

Think Before You Dip

Before you turn to your retirement plan for help, you should be aware of some things. It may seem like an easy option, but the IRS actually has some rules that you have to meet before taking money from your 401(k). One of the following conditions must occur before you can take money out without being penalized:

  • You lose your job
  • You claim disability
  • You or your spouse dies
  • You turn 59 ½ years old

401(k) Withdrawal Based on Financial Hardship

If you don’t meet the criteria listed above, but are facing a financial hardship, you may also be able to take an early withdrawal from your retirement account. The IRS’ hardship rules require you have one of the following needs to qualify for a hardship withdrawal:

  • Medical expenses for you or your immediate family
  • Financial assistance in the purchase of your primary residence (this excludes mortgage payments)
  • Tuition or other educational fees (maximum of 12 months) for you or your immediate family
  • Prevent the eviction of you from your primary place of residence
  • Burial or funeral expenses for deceased parent, spouse or other immediate family member
  • Expenses for the repair of damage to your principal residence

The amount of money you take can’t be more than the amount you actually need to cover your hardship. It’s important to note that your early withdrawal due to a financial hardship is subject to state and federal taxes, and is also subject to a 10 percent early withdrawal penalty if you are under age 59 ½. So keep all of these considerations in mind when deciding whether to dip into your retirement account.

401(k) Withdrawal Help

If you’re not sure if a retirement withdrawal is the best route to go, contact Rea & Associates. Our team of Ohio retirement plan services professionals can help you determine if you’re eligible and what you need to do to minimize your tax liability from a withdrawal.

Author: Steve Renner, QKA (New Philadelphia office)

 

Looking for more information related to 401(k) or retirement plan withdrawals? Check out these blog posts:

Will I Be Penalized for a Hardship 401(k) Withdrawal?

Raiding Your 401(k)? It’ll Cost You

What Are The Rules For Taking A Distribution from My 401(k) Plan?

 

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DOMA’s Effect On Retirement Plans And Beneficiary Forms

Monday, May 12th, 2014

Last June, the U.S. Supreme Court, in United States v. Windsor, ruled that Section 3 of the federal Defense of Marriage Act (DOMA) is unconstitutional. As you may recall, DOMA Section 3 states, “In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word ‘marriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers only to a person of the opposite sex who is a husband or a wife.”

By holding Section 3 of DOMA unconstitutional, qualified retirement plans must now treat the relationship of same‐gender married couples as a marriage in order to maintain the plans’ tax‐qualified status. The term “spouse” includes an individual married to a person of the same-gender if the individuals are lawfully married under state or foreign law.

The IRS recognizes a valid same-gender marriage even if the married couple is living in a state that does not recognize same-gender marriages. The term “spouse” doesn’t include individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that is not defined as marriage.

Important DOMA Information for Plan Sponsors

  • Participants (and their spouses) who are in same-gender marriages generally must be treated as married for all purposes under a retirement plan. This was effective as of June 26, 2013.
  • As of September 16, 2013, your plan must recognize same-gender marriages that were lawfully performed under the laws of the 50 states, D.C., U.S. territory or a foreign jurisdiction.
  • States that currently recognize same-gender marriages include: California, Connecticut, Delaware, Hawaii, Illinois (law will take effect on June 1, 2014), Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Rhode Island, Vermont and Washington.
  • Depending on whose retirement plan provider plan document you use, you may want to contact the provider to ensure that your retirement plan complies with these new rules. In general, amendments to such plans are due by the end of the plan’s remedial amendment period, or December 31, 2014.
  • As a plan sponsor, you have no obligation to notify current or former participants of the new rules.
  • All qualified plans must recognize same-gender marriages for all plan purposes. This would include provisions applicable to beneficiary designation, death benefits, applicable spousal consent requirements regarding distributions and loans, rollovers, etc.

Retirement Plan Help

Now is the perfect time to update beneficiary forms for all participants in your plan. It’s important you keep a current copy of each participant’s beneficiary form in his or her personnel file. If you need assistance with this, contact Rea & Associates. Our Ohio benefit plan services team can help you determine what you need to do to keep in compliance with IRS and DOL regulations.

Author: Andrea McLane, QKA (Dublin office)

 

Looking for more posts about retirement plan best practices? Check these out:

What Are The Rules For Taking A Distribution from My 401(k) Plan?

What Should Plan Sponsors Ask Their Investment Advisors?

What Are The Responsibilities of a Fiduciary?

 

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How Can A Small Business Owner Keep More Money In Their Pocket?

Thursday, May 8th, 2014

Who doesn’t want more money in their pocket? It’s something I think all of us would love to have. And small business owners are in luck! Accountants throughout the state of Ohio advocated for small business owners and worked with Ohio legislators to develop the Ohio Small Business Investor Income Deduction provision. In the 2013 tax year, Rea clients eligible for this tax deduction submitted nearly $80 million in tax deductions, and realized nearly $4 million in tax savings. This provision has truly helped small business owners keep money in their pocket!

How Do You Know If You Eligible For The Ohio Small Business Income Deduction?

If you’re a taxpayer who owns a business, such as a sole proprietorship, a partnership or a limited liability corporation, and you bring in $125,000 in Ohio-sourced income (that would be $250,000 if you’re married and file jointly), you’re eligible for this deduction. For the first $125,000 (or $250,000 married, filing jointly) you report, you can take up to a 50 percent tax deduction. For many business owners, that’s real, significant savings. Keep in mind that businesses themselves are not eligible for the deduction, but rather the business owner, as an individual taxpayer, is eligible.

Why This Deduction Matters  

This provision, along with others, provides a tax cut for individual taxpayers. Last year, Ohio Governor John Kasich released a broad tax reform package that was aimed at putting money back into Ohio taxpayers’ pockets. Part of this reform was the Ohio Small Business Investor Income Deduction (SBD). The Ohio SBD, along with a string of other tax cutting provisions, is aimed at cutting taxes for Ohio business owners and individuals by $2.7 billion over the next three years. The end goal: to build and accelerate economic and job growth in Ohio.

If you were eligible for this deduction in 2013, you should have realized tax savings. In looking to the future, have you considered what your 2014 tax savings could be by taking advantage of the Ohio SBD? If not, it’s something you should be looking into so you can keep more money in your business.

Ohio Tax Help

Unsure of your eligibility or need help in understanding how this deduction can apply to you? Contact Rea & Associates. Our team of Ohio tax professionals can review your operating structure and help you maximize your 2014 tax savings.

Author: Lee Beall, CPA (Dublin office)

 

Interested in reading more blog post about tax savings? Check these posts out:

How Will A Tax Credits and Incentives Plan Benefit Your Business?

So Is It a Tax Credit Or a Tax Deduction?

How Do You Make Your Charitable Contributions Count?

 

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