Shareholders vs. Stakeholders
Jul 02, 2014
Most closely held companies think about their shareholders in ways that are different, in my opinion, than a publicly traded company. Shareholders have a far different impact on the company and how it’s managed in a closely held environment than what most publicly traded companies experience.
A few weeks ago I was having lunch with a CFO from one of my closely held clients and we were talking about his goals for the year and what issues he thought were the most important to accomplish throughout the year. As we talked through each of the goals it became clear that he was interchanging the best interest for the stakeholders with the best interest for the shareholders. In many cases, those interests are identical and it’s easy to interchange one with the other. However, in this case the shareholders have very specific ideas related to the future of the company and how resources should be used to meet both corporate and individual goals. This CFO was rather new to his position and was beginning with the assumption that only the corporate goals were worthy of concentrated effort in the next months. It was clear to me that the corporate goals, although well intended and beneficial to the company, must be undertaken with the stakeholder goals also given their due consideration.
That whole line of reasoning started me thinking about how and why stakeholders might have a different perspective than shareholders in some very specific issues associated with corporate governance. I believe the most successful CFOs in a closely held environment balance those two differing perspectives to the benefit of both as much as possible. I have seen many circumstances where individual shareholder goals override what is in the best interest of the stakeholders of the corporation but those situations are many times driven by special needs of the shareholders and do not represent the best method of operation for the closely held company.
I’m sure we’ve all seen closely held companies which end up being primarily lifestyle supporters of the owners, but that all too often is short lived. That line of reasoning causes the company’s management team to be constantly focusing on and maximizing shareholder goals. A more balanced approach would be to think about the overall company as well as providing lifestyle support to the shareholders. This usually results in a far stronger company and a more motivated management team. The management team and other stakeholders who are not shareholders will find it worth-while to will work hard to strengthen the company that they work for to provide long-term stability.
Categories: Cost Accounting
FIFA World Cup & Taxes
Jul 01, 2014
There is no doubt that World Cup fever has started to spread with Team USA advancing to Round 16 of the 2014 FIFA World Cup. So many have wondered….what is FIFA and who gets the money from all of these events?
FIFA, or the Federation Internationale de Football Association, is the international governing body of soccer, or football as it is called in all countries other than the United States. The association is governed by Swiss law, founded in 1904 and is based in Zurich. It has 209 member associations, all focusing on the same goal of constantly improving football. FIFA currently has over 310 employees from over 35 countries. FIFA is managed centrally and run similarly to our own government, with a Congress (legislative body), Executive Committee (executive body), General Secretariat (administrative body) and numerous committees that assist the Executive Committee. The Congress generally passes laws that help govern the organization and also approves the annual report.
Team USA was one of only 32 teams to earn a coveted spot in the World Cup. They competed against over 209 teams across the world to earn their trip to Brazil in 2014. Worldwide over 3.7 billion people watched the 1998 World Cup that was held in France.
With all of these countries competing, it can be safe to say that FIFA earns a tremendous amount of money. The majority of FIFA’s income is directly correlated to events like the World Cup. It is expected that the 2014 World Cup will bring in over USD $5 billion, which a majority will come from the sale of TV and marketing rights. In addition, expenses related to the cost of operating the World Cup in 2014 are estimated to be around USD $2 billion, and about half of this will be going directly into the Brazilian economy.
FIFA is organized as a not-for-profit association under Swiss law; therefore, no tax is paid in Switzerland on revenues earned from the World Cup, and other commercial income. FIFA works to obtain various tax exemptions from the World Cup, and Brazil is no exception. There have been large debates over whether these tax exemptions actually are harmful to the host countries economy or beneficial. One can argue that the money spent in Brazil on building stadiums would be better served constructing schools or houses, while opponents can dispute that Brazil will actually make more money through tourism than it will forgo in tax dollars. In addition, all prize money earned in the World Cup will be taxable to Brazil, which is expected to amount to approximately USD $576.
No matter which side of the debate you are on, one thing about the World Cup holds true; countries around the world become unified cheering for both the players and the game.
Go Team USA!!!
Categories: Uncategorized
Costing Accounting Is Not Like Cooking!
Jun 25, 2014
I really enjoying cooking, especially baking. Often, when I am doing these things I add a little of this and a pinch of that. Measuring and being precise is not always necessary when cooking. Sometimes it is necessary to base your decisions on taste or smell. To me, that’s all part of the fun and creativity surrounding cooking. One of my favorite things to make is cream cheese brownies with chocolate frosting from scratch. They typically are devoured within a short time and are quite delicious! I have many other things I enjoy making as well, but desserts to me are the most fun!
Costing accounting is not like cooking. Exact measures and reporting are what make for a well-oiled and efficient system. I met with a client not too long ago and we were discussing their change-over and set-up times for which they had various lines These lines required different types of resin and coloring based on the process. I asked him how long each of those things typically takes and he said “oh not too long”
Well, “not too long”could mean different things to different people. For one person that could be 15 minutes, to another an hour. In addition, when someone attempts to estimate timing, errors occur as their perception is usually dramatically off from reality.
Some set-up and change-overs require quite a bit and it is at times possible to allocate costs directly to these activities. Without having accurate timing and process information doing so would be impossible.
Other things that can be affected by not knowing the accurate run-length of your work cell or machine. For example, productivity may be incorrect. You could be producing 500 widgets in an 8 hour shift thinking you can only make around 62 widgets an hour when in reality there is a 2 hour set-up time so you are actually making 83 widgets an hour during actual production.
It is important to have reasonable and accurate information. Just guessing or assuming can often leave you in an uncomfortable position that will only lead to bad decisions down the road. Take the time and walk to the other side of the wall and view these activities occurring, it is the only way to really know.
Categories: Cost Accounting
Documenting Business Expenses
Jun 24, 2014
Most ordinary and necessary business expenses are deductible as long as you have the proper documentation. If your return is audited, the IRS may require that you show the type of item purchased and that payment was made. Here are some examples of acceptable documentation.
Checks. A canceled check can be used as proof of payment if it has the name of the payee and shows the cancellation on the back. The IRS also accepts highly legible images of checks if you don’t have your checks returned.
Credit/debit card transactions. You must have an account statement that shows the amount of the charge, the transaction date, and the name of the payee.
Electronic funds transfers. The IRS requires an account statement that shows the amount of the transfer, the date the transfer was posted to the account by the financial institution, and the name of the payee.
Invoices. You must have an invoice or some other form of documentation showing what you purchased. Canceled checks, credit/debit card statements, and records of electronic funds transfers only provide proof of payment.
Cash register receipts. If you receive a receipt with no details of the items purchased, write a description of the items on the slip. As long as the purchase is for a relatively small amount, the IRS should accept it.
If it’s not self-explanatory, make sure you write the business reason for your purchase on the invoice or receipt so you’ll be prepared for any questions from the IRS. And be aware that there are separate substantiation rules for travel, entertainment, and auto expenses.
Categories: Uncategorized
Creating a Winning Succession Plan
Jun 20, 2014
Few business owners plan their exits from their businesses with as much care as they planned their entries. Just as every owner starting out needs a business plan, every owner looking to retire needs a succession plan to help transfer ownership and to achieve his or her retirement goals.
The Four Goals of a Succession Plan
While situations vary from business to business, most well-thought-out plans are designed with some or all of these objectives in mind:
- Protecting the company’s value and ability to compete
- Minimizing conflicts among family members
- Reducing gift and estate taxes
- Achieving the owner’s retirement goals.
Start Early
Starting work early on a succession plan may help ensure a smooth change of ownership. An early start helps those family members who are active in the business to grow into their new roles and responsibilities over time. Moreover, starting early provides the opportunity to make changes to the plan, if necessary, before the actual transfer of control.
As a business owner, you should be careful not to attach provisions to the transfer of ownership that could limit the ability of the business to grow and compete in the future. Some business owners have included provisions in their wills or in the company bylaws that, for example, limit the level of debt the business can carry or restrict the types of opportunities the company can pursue.
A succession plan is also an effective tool for minimizing your estate taxes. You can capitalize on the $14,000 federal gift-tax annual exclusion by giving your children company stock over time. However, it’s important that you determine the fair market value of the shares you transfer so that you don’t run afoul of the IRS.
Letting go of the business you have spent a lifetime building is a huge decision. That’s all the more reason why you should take the time to do it correctly. We can help you put together an effective and workable succession plan. Please give us a call.
Categories: Uncategorized