Managing Cash Flow After Disruption

Jun 09, 2021

COVID-19 has fundamentally changed the way in which businesses operate. From remote working to labor shortages, businesses have been forced to think innovatively to survive in a post-pandemic world. Revenue and cash flow have no doubt been a point of unease. During a recent WVC survey, more than 50% of respondents noted their number one concern being cash flow and access to capital. In a time of crisis, the focus is less on revenue and profits and more on liquidity and cash flow. In a distressed organization where resources are likely constrained, time is better spent on developing an accurate cash flow.

William Vaughan Company has developed a 13-week cash flow forecast tool for businesses to assess short-term cash demands. This model offers the most granular view into the money moving in and out of a business which means any short-term planning shortfalls can be addressed immediately. Click here to download.

Here are some best practices for cash flow forecasting business owners should consider if and when they find themselves in a crisis:

  • Take control – Prioritize your expenses from critical to nonessential. With precise insight into your cash peaks and valleys, it’s easier to prepare contingency plans ahead of projected pinch points.
  • Let the data drive decisions – Short-term cash flow forecasting should be driven by your data. Critical decisions can be made effectively with the numbers at hand. Most importantly, the 13-week cash flow is an objective, repeatable model that can eliminate false optimism among leadership.
  • Communicate – Use this as an opportunity to create an open dialogue between management and other key team members. In addition, it can also help expedite key decisions for your lenders.
  • Think outside the box – Think about other financing opportunities. This will also identify fixed versus variable expenses in which you can build scenarios from the model and “stress test” it against various conditions.

As businesses begin the long road to recovery, thinking strategically and taking action to minimize negative impacts will decide who remains competitive. Cash flow forecasting is just one of the many tools business owners can use to ensure their sustainability. With a thoughtful approach, you will gain the visibility needed to potentially right the ship.

How we can help
Don’t go at it alone! If you’re not sure how to assess your current environment and need guidance on utilizing cash flow forecasting, contact a William Vaughan Company advisor today!

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10 Things You May Not Know About an LLC

Jun 11, 2015

Object_MagnifyYou probably know of several businesses whose formal names end with the acronym LLC. And you probably also know that LLC stands for limited liability company. Here are ten things you may notknow.

  1. An LLC generally protects its owners from personal liability for information on llcbusiness obligations in much the same way a corporation does, but an LLC is not a corporate entity.*
  2. Like a corporation, an LLC can do business in multiple states, although an LLC must be organized in a specific state.
  3. The owners of an LLC are called “members.” There is no limit on the number of members an LLC can have, and members don’t necessarily have to be individuals. Members’ management roles are typically spelled out in an operating agreement.
  4. Upon formation of an LLC, the members contribute cash, property, or services to the LLC in exchange for LLC shares or units.
  5. An LLC may borrow money in its own name and is responsible for repayment of the debt.
  6. An LLC is usually treated as a partnership for federal income-tax purposes. (The remaining four points assume partnership treatment.)
  7. Like partners, LLC members are not considered employees of the company. However, an LLC can have non-member employees.
  8. LLC members are taxed directly on company income. The LLC itself doesn’t pay federal income taxes.
  9. If an LLC has a loss, its members generally can deduct their share of the loss on their own tax returns.
  10. For tax purposes, an LLC’s income and losses are divided among its members according to the terms of their agreement. Tax allocations must correspond to economic allocations of profit and loss.

An LLC is but one structure you might consider using for a business venture. We can help you determine which type of arrangement will best meet your objectives.

  • Each state has its own laws governing LLCs. Consult with an attorney before establishing an LLC.

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Borrowing from Yourself — Not Always the Best Plan

Jun 09, 2015

Where can you turn if you need cash in an emergency? Some people turn to their 401(k) plans. After all, you’re borrowing your own money and paying it back to yourself with interest.

But taking a loan from your 401(k) plan may put you at risk of not reaching your retirement goals. Before you take any money from your retirement account, take the time to review its impact and the rules associated with 401(k) plan loans.

On the Plus Side

If your plan permits loans (and not all plans do), you’ll generally be able to borrow up to half of your vested plan balance, capped at $50,000. Taking a loan from your plan may be easier and faster than getting a loan from a traditional financial institution. And you’ll usually repay the principal and interest to your plan account through automatic payroll deduction.


On the Minus Side

The money you borrow will no longer be in your account benefiting from tax-deferred growth. Plus, you’ll be repaying the loan with after-tax dollars.

That means the money used for repayment will be taxed twice, since you’ll pay tax on it again when you withdraw it at retirement. And, if you have trouble contributing to your plan account while you’re making loan payments, you might end up with less saved for retirement than you need.

And the really bad news? If you leave your employer for any reason, you’ll usually have to repay the entire loan balance within 90 days or it will be considered a taxable distribution, requiring you to pay income tax on the amount of the loan. Furthermore, you may potentially owe a 10% early withdrawal penalty on the amount in addition to taxes.

Hardship Withdrawals: A Last Resort

If you’re faced with a financial emergency and you’ve already borrowed all you can, you may be able to take a hardship withdrawal from your 401(k) plan account. You must have an immediate and heavy financial need, such as medical expenses that aren’t covered by insurance.

You usually can withdraw the money you’ve contributed, but not employer contributions or earnings. You’ll owe income tax and, possibly, an early withdrawal penalty. You won’t be permitted to make contributions to your plan for six months after the hardship withdrawal is made. And, unlike a plan loan, withdrawals cannot be repaid to the plan.

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Bike Your Way to Some Tax Savings

Jun 04, 2015

Summer is here! Almost. With the nice warm weather, who wants to be cooped up in their car every day on their way to work? Many American’s across the country have taken up alternative travel arrangements to get themselves out of the isolation of their cars. Finding other ways to get around town is a great thing for their health and the environment, but what many employees are unaware of is it could be good for their pocketbooks as well!

BikeToWorkGas is expensive! So, put aside the obvious fact that biking to work would save some serious dough and consider the possible tax benefits to making the daily environmentally conscious commute to work. That’s right…tax benefits.

The Internal Revenue Service has decided that Qualified Bicycle Commuting Reimbursement in the amount of twenty dollars ($20) per Qualified Bicycle Month can be excluded from their employees’ wages. A Qualified Bicycle Month is any month:

  • In which an employee uses their bicycle on a regular basis for a substantial portion of commuting to their residence and place of employment and,
  • The employee does not receive any transportation in a commuter highway vehicle. The employee doesn’t receive a transit pass or any qualified parking benefits.

Of course, the employer can provide a benefit over the twenty dollar threshold, but any amount over the exclusion limit would be required to be added to the employees’ wages. One of the nice benefits of this twenty dollar exclusion is the fact that even though the employees are not taxed on this exclusion amount; the employer can still deduct it as an expense against their own taxes.

So while twenty dollars per month isn’t a huge amount, wouldn’t it be nice to receive that benefit if you planned on the alternative traveling this summer! Save some money, good for the environment, and good exercise, seems like a win-win.

By: Jill Blakeman, CPA

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Student Loan Deduction

Jun 02, 2015

With the ever-increasing cost of higher education, most students (or their parents) will have loan payments that extend long after the cap and gowns are put away. The good news is that the interest paid on student loans may provide you an income tax deduction.

The deduction can reduce the amount of your income subject to tax by up to $2,500. The student loan interest deduction is claimed as an adjustment to income—meaning you can claim it even if you don’t itemize deductions on Schedule A.

Education_Graduation11Deductible interest on a qualified student loan means a loan you took out to pay for qualified education expenses including tuition, room and board, and books, supplies and equipment for attendance at a postsecondary educational institution. This includes most accredited colleges, universities, and vocational schools. Loans for attending graduate school qualify as well.

The loan must be to pay educational expenses for you, your spouse, or a person who was your dependent when you took out the loan. The student must be enrolled at least half-time in a degree program.

The amount deductible is phased out for those with modified adjusted gross income of over $65,000 ($130,000 if married filing a joint return). Married individuals filing separately cannot take the deduction. You cannot take the deduction if you are claimed as a dependent on someone else’s return.

There are no time limits for taking the deduction; as long as you are making payments on the student loan, the interest is potentially deductible. The deduction is available only to persons legally obligated to make payments under the terms of the loan.

No one enjoys having outstanding student loans long past graduation, but realizing the income tax savings can help take out some of the sting of making the payments.

By: George Monger, CPA

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