Tag Archives: debt

Increase Cash Flow, Reduct Debt

Millennials: Burdened by Debt Today

In a new Wells Fargo study on the attitudes and behaviors of millennials on money and saving,  more than half  (54%) say their top financial concern is debt. That’s right, primarily student loan debt. And 42% say their debt is “overwhelming” — twice the rate of boomers who were also surveyed.

Other key findings:
· Sixty-one percent of millennials consider themselves “a saver”.  The gender differences are big with 66% of millennial men calling themselves a ”saver” versus 56% of women
· About half (49%) of millennials have begun saving for retirement and the gender differences persist with 54% of men saving and far fewer — 43% — women millennials saving
· Millennials (43%) rate the value of their education as “a great value” and 45% say “somewhat of a value.”

Although millennials are burdened by debt, they are very optimistic about their future with 67% of millennials saying they believe they will be better off than their parents. Seventy (70%) are very to somewhat confident that they will be able to save enough to afford the lifestyle that they hope to have in retirement.

value of money

Time Value Of Money And Planning

Understanding the general concept of the time value of money can help consumers plan appropriately for future needs and today’s wants. This concept applies to how a consumer may save, invest and make decisions on lending needs.

Many of us are familiar with the idea that the earlier one starts saving the more he or she will have in the future. This may be the case, but it’s also important to be familiar with present value of money and debt, future value of money and debt, and the beginning period and ending period of saving.

When a consumer considers how these concepts work together, it can provide the consumer with the valuable information needed to effectively plan for the future. A good example is credit card debt. If one were to calculate the length of time and amount of finance interest paid to credit card companies by only paying the minimum payment, it would shock most of us.

Saving for future needs is important. We must understand that the dollars we save today (present value of money) will most likely be worth less in the future. So how can we make decisions to save and take advantage of time value? Let’s consider a scenario of saving for retirement in an IRA (Individual Retirement Account) annually. Investors have a choice to save at the beginning (beginning period) of each year rather than saving at the end of the year (ending period of investing). Using this strategy, an investor can earn more on his or her money by contributing the same dollar amount annually at the beginning of the year rather than at the end of the year.

Investing consistently and taking advantage of different types of accounts sponsored by employers, deferred-tax saving retirement accounts and after-tax saving accounts can help consumers plan for retirement. Many employers offer match savings, as well as company contribution, just for signing up for the employer retirement plan. It’s important to take full advantage of the match. Also, some plans offer both a Traditional (pre-tax) deferred saving as well as (after-tax) Roth saving plan. Each of them has specific benefits, and if used properly, they can be a valuable piece of a consumer’s planning strategy. Keep in mind that withdraws prior to age 59-1/2 may result in a 10 percent IRS tax penalty, in addition to any ordinary income tax. IRA and Roth IRA accounts can also be used in addition to employer sponsored plans.

The traditional employer plan and individual retirement plans allows consumers to save on a tax deferred basis; however, he or she will need to account for ordinary income taxes during distributions. Where as, Roth contributions allow for after-tax contributions and tax-free growth and withdraws. By combining these options, and starting sooner rather than later, consumers can take advantage of the time value of money as well as using all options available.

As consumers, it’s not only important to take advantage of the time value of money by investing early, but it’s also important to manage debt in a similar way. Present debt and future debt are key ingredients to manage and can make or break consumer’s future plans. By applying the same concepts to debt management, one can see the value of using time as a way to structure debt for the consumer rather than the financing institution. For example, be wary of committing to long-term debt. When committing to long-term debt, consider a plan to payoff the debt early by making additional payments. Applying the time value of money in this case will save consumers a lot of money in the long run and reduce debt sooner. Also, keep in mind that lower interest rates will help save consumers finance cost. A little extra planning can greatly benefit consumers.

These concepts can be very valuable with practice, practice and more practice. Consumers can become experts in controlling their way of using time value of money and planning for future needs. For more information, visit jacobgold.com.

Securities and investment advisory services offered through ING Financial Partners, Inc. Member SIPC. Jacob Gold & Associates, Inc. is not a subsidiary of nor controlled by ING Financial Partners, Inc. This information was prepared by Michael Cochell of Jacob Gold & Associates, Inc. and is for educational information only. The opinions/views expressed within are that of Michael Cochell of Jacob Gold & Associates Inc. and do not necessarily reflect those of ING Financial Partners or its representatives. In addition, they are not intended to provide specific advice or recommendations for any individual. Neither ING Financial Partners nor its representatives provide tax or legal advice. You should consult with your financial professional, attorney, accountant or tax advisor regarding your individual situation prior to making any investment decisions.

Cash is King, but Wrong Choices Can Bring Down a Contractor

You’ve heard the phrase a million times – “Cash is king.” But what are we trying to accomplish with cash? Does cash equal success? Profit? Stability? Does a lack of cash signal a problem? It all depends on your perspective.

Contractors are in a unique business where everything is based off of estimates, so revenue is recognized under the assumption that your estimates are accurate, although subject to change. For this reason you cannot afford to just focus on the profit/loss information driven by your income statement or WIP schedule.

We all know your jobs are typically not going to generate the EXACT amount of profit you estimated at bid day, so the income statement is just your “best guess” as of that day as to how your year is going. The list of why profit on jobs can fade is endless – requested change orders are performed but never approved by the owner, subcontractor issues, site conditions, weather, labor quality, project management, poor estimating, ambiguous bid specs, difficult owner, unexpected delays, etc. The point is that in addition to monitoring the status of all your jobs which will drive your profit, you must also be keenly aware of your cash position and cash flow, both now and on a projected basis.

Why should cash flow be targeted as a key measure of business performance? Because the income statement and balance sheet, although useful, have all kinds of potential biases as a result of the assumptions and estimates that are built into them. However, when you look at a company’s cash flow statement you are getting an indirect look into their bank account. In the end, cash does not lie.

As a former commercial loan officer, I had to continually advise business owners that even profitable companies can fail if they run out cash. Unfortunately, a strong income statement is not necessarily indicative of a financially healthy company. Contractors can fail from a lack of cash for a number of reasons:

  • Growing too fast without the appropriate equity or bank financing to keep up
  • Too many large projects undertaken at once with slow paying owners
  • Letting receivables get beyond 60-90 days past due
  • Working for owners with cash flow problems of their own
  • Bad debt that takes a long time to be recognized/written off
  • Purchased too much inventory or equipment using cash
  • Cash taken out of the business and loaned to shareholders/employees/other business interests
  • Excessive reliance on bank debt and leverage
  • Excessive distributions to shareholders
  • Excessive underbillings
  • Problems collecting retainage

Remember, every bank will have a limit they are willing to lend in order to support your business and cash flow needs. It’s up to you as the owner or chief financial officer to know your banking limits and compare those to your needs and identify solutions to make up any shortfalls. What are some ways you can help improve your cash position?

  • Forecast project cash flows when bidding new work to determine if there are periodic drains on cash for items like equipment or material purchases, mobilization, or peak labor periods and the delay in the outflow versus projected inflow (do you know how long the owner/GC typically pays after receipt of a submittal?).
  • Compare the project forecasts against your general cash flow forecasts to determine your cash flow needs and whether you have the available cash on hand or working capital line of credit to support the project. Be conservative in your assumptions.
  • Be sure to establish on ongoing dialogue with your banker around the size of your line of credit and understand how large of a line your bank is comfortable extending and the requirements to obtain that limit. Be sure they understand the seasonal nature of your business and cash flow cycle and that you may request an increase to your line at a time when you are cash rich and seemingly do not need the increase. It’s always better to ask for the increase before you actually need it. Typically banks do not charge a non-use fee for contractor bank lines so the additional credit limit should not come with much of a cost.
  • Discuss with your banker the ability to have a separate capital expenditure line of credit available for equipment purchases so you are not using your cash on hand or working capital line of credit to buy fixed assets.
  • Are you having a problem with getting your submittals approved the first time? This can cause unnecessary delays and impact your cash flow. Create a best practice in getting these to your owner/GC’s in a timely manner each month in the format required.
  • Are punch list items to blame for slow paying owners? Holding up retention? Again, this can often be avoided with a system of procedures to address them in a timely manner and keep the cash flowing.
  • While you need to keep your key suppliers happy, are you paying them faster than you are paid? Is this necessary? Can you work with your suppliers during a cash crunch to allow for extensions of time without an interruption of service or terms for new orders?
  • What role do your project managers play in getting paid by your client? Can they be more proactive and involved in the collection process?
  • How do you determine distributions or bonuses at year end and throughout the year? Do you analyze your cash on hand versus your cash flow forecasts to consider the impact of these items? Can they be accrued but not paid in order to conserve cash? How about deferring a portion of these payments? While we all want to reap the rewards of the most recent year, we also need to focus on the long term health of the “golden goose” so it can keep laying eggs, year after year.
  • Are you in the middle or beginning of a shareholder buyout plan? Can this be structured to be paid over time rather than cash out all at once? Are there provisions in your agreement to curtail payments in a given year if the company’s performance was below a certain target?

If time is taken to understand the cash flow needs of your business, the return on that investment in time can be considerable. In difficult times like these, it could likely mean the difference between success and failure. You must keep track of your effectiveness and timeliness in turning profit into cash. This will also allow you to see early warning signs of trouble and take appropriate action. Being able to proactively manage your cash needs is critical to the short and long term success of your business. Don’t forget though that you may experience times when you have good cash flow even without profit. Look at your statement of cash flows to determine the sources of your cash. A large reduction in A/R or increase to overbillings may boost your cash positions temporarily, but the income statement or backlog schedule may be painting a different picture. Be prudent with your funds as you determine how best to deploy you cash and always keep one eye on future needs.

Mike Marsella is a Surety Producer for MJ Insurance. www.mjinsurance.com



The "B" Word 2008

The “B” Word-Bankruptcy isn’t always a bad thing

The word “bankruptcy” sends chills down the spines of many business owners and executives as they envision certain financial demise.

b_word 2008

But bankruptcy is no longer the frightening phenomenon it once may have been, particularly in the business realm. Chapter 11 bankruptcy has become an extremely useful business tool for a company to reorganize its operations, accomplish a sale of assets, obtain new financing or achieve a capital restructure.

The following are examples of challenges a business often faces:

  • A new business has not quite met revenue expectations.
  • The equity structure is outdated or unworkable.
  • The business owns excess real property it wants to sell or the business wants to acquire additional property.
  • The business has been threatened with litigation.
  • The business wants to refinance, but the lender has expressed concern about financial or other issues.
  • The owners of the business want to merge with another entity.

The most common use of the Chapter 11 bankruptcy process is one designed to restructure the company’s balance sheet. A company that wants to extend or refinance onerous debt, eliminate burdensome contracts or leases, and/or bring in new capital can generally accomplish these goals by a Chapter 11 filing that provides these opportunities and a temporary safe haven.

But Chapter 11 isn’t just for severely financially distressed entities. There are myriad other business reasons for filing a bankruptcy. For example, bankruptcy may be a good alternative for a client who owns some troubled properties and other healthy ones. Structuring a “roll up” and then using the bankruptcy process to propose a long-term solution can provide the necessary and ultimate protection for the distressed properties. Other common business transactions such as sales, mergers and acquisitions may be accomplished in a more beneficial fashion for all parties under the protective umbrella of Chapter 11.

A general knowledge of bankruptcy and the benefits it can provide will arm business owners, management and their advisors with a repertoire of creative solutions to meet business challenges and attain the companies’ ultimate goals.

An overview
The purpose of a Chapter 11 bankruptcy is to reorganize. It may include restructuring debt, altering operations, eliminating equity, selling assets or any combination of these things. The reorganization is accomplished through a document called a “plan of reorganization” in which the debtor describes how it intends to pay creditors or treat equity interests. Creditors and equity interests have the opportunity to vote in favor of or against the plan. The aim is to have the plan confirmed by the bankruptcy court, at which time it becomes a binding contract on all affected parties.

A Chapter 11 proceeding is commenced quite easily by filing a simple two-page “petition” with the bankruptcy court. At the time of the filing, an “estate” is created and all assets owned by the debtor prior to the filing are considered to be property of that estate. The debtor is referred to as the “debtor in possession” (DIP). Filing of the case triggers an immediate imposition of an injunction called an “automatic stay.” The stay prevents creditors from proceeding with any action against the DIP, and entitles the DIP some “breathing room” while assets are marshaled or while a reorganization is being developed.

In many respects, the general operations of a business continue in Chapter 11 as they did prior to the filing. The DIP can continue to buy inventory, produce products and sell merchandise as long as the transactions are in the ordinary course and scope of business. Nevertheless, certain actions such as the payment of pre-petition debt, the use of cash proceeds that may be subject to a lien, and the sale of major assets are prohibited unless the bankruptcy court approves them.

The plan of reorganization sets forth the means for payments to the company’s creditors. The general rule is that all claimants on the same level must be treated equally and must be paid in full before the next level can receive payment. Other provisions include financing arrangements or capital contributions and the composition of the company’s management.


The final step is plan “confirmation” by the bankruptcy court. In order for the DIP to confirm a plan, it must obtainthe affirmative vote of all the classes of creditors it has proposed. However, the bankruptcy code permits the DIP to confirm a plan even if it doesn’t have all the needed votes, as long as the plan complies with certain specific sections of the code. Once the plan is confirmed, a bindingcontractbetween the debtor and its creditors is created and the debtor emerges from bankruptcy. All previous obligations to and claims by creditors are discharged and are replaced by therepayment orother obligations created by the plan. The “reorganized” debtor can have a fresh start.

Of course, there are many specifics and nuances to each bankruptcy case. For a comprehensive read on bankruptcy, you can download this guide at www.jsslaw.com/publications.aspx.

Carolyn Johnsen is a member of Jennings Strouss & Salmon. She can be reached at 602-262-5906 or cjohnsen@jsslaw.com

B2B collection agencies help companies recoup on unpaid bills, 2008

B2B Collection Agencies Help Companies Recoup On Unpaid Bills

Derailing Debtors

B2B collection agencies help companies recoup on unpaid bills

By Don Harris

Far too many business owners and operators don’t realize that a sale is not a sale until they see the money. They put plenty of emphasis on the front end of their business — development, marketing and selling — but often the back end, getting paid, doesn’t get the attention or resources needed to make a company truly successful.

After three months, the probability of collecting on a debt drops to about 70 percent, according to the New Jersey-based Commercial Collection Agency Association. After six months, the likelihood declines to 52 percent, and after a year, the chances of collecting on a delinquent account drop to less than 23 percent, the association estimates.

That’s where professional commercial collectors come in. They recoup untold millions of dollars for businesses, helping the bottom line in today’s troubled economy. Rates for doing the collection deed are pegged to a percentage of the amount recovered, and many don’t charge anything if they come up empty.

Don’t confuse these collection agencies with the ones that send employees tiptoeing into someone’s house to repossess a refrigerator or jump-start a car in the middle of the night. They’re involved in what insiders refer to as B2B collections — business to business. For the most part, they steer clear of consumer debtors. They do, however, repossess heavy equipment or machinery for which the buyer failed to pay.

Rich Hollerbach, CEO of Singer, Bach & Associates, with operations in Scottsdale and Tucson, says his firm has two paths to debt collection — the soft approach in the early stages of delinquency and more aggressive tactics for troublesome situations.

Hollerbach, who has more than 20 years of B2B debt collection experience, says the key in either scenario is to try to maintain a good business relationship between his client and the debtor.

“We try to find out the reason for non-payment,” he says. “It’s more of an audit-type approach. We become an extension of their in-house collections procedures. A lot of times we find out there was some type of miscommunication, or maybe there was a potential problem with the products or services that were delivered. Retention is the key thing. We want to make sure they will continue to do business with our clients.”

In more difficult collection situations, Singer, Bach & Associates conducts investigations to determine the ability of an indebted company to pay.

“We might go to their business for a face-to-face meeting,” Hollerbach says. “There are several reasons for non-payment. Maybe it’s a cash flow problem in their own business — they didn’t get paid for whatever they’re re-selling — or their industry has taken a hit or it could be a seasonal issue.

“We’re going to want to know who else they owe, how much they owe, do they have any tangible assets, and how well their business is doing. And, we want banking and tax information. We gather all of this so we can make an intelligent decision if we can’t come to a voluntary resolution,” Hollerbach continues. “We do this so we’re better educated and we actually collect from a position of strength.”

Hollerbach recalls instances in which a debtor claimed he couldn’t pay.

“I might say that we found an opportunity for (the debtor) to liquidate this particular asset to take care of (an) obligation to my client,” he says.

Litigation is usually a last resort, depending, of course, on the amount owed. It’s often a case of throwing more money at a bad debt, especially if the debtor is about to go out of business.

Singer, Bach & Associates, which only gets paid if it collects for its client, tape records its phone conversations to protect against unwarranted claims.

“We deal on the negative side of business, and emotions get involved,” Hollerbach says. “A lot of times we’ll find out with this process that we weren’t out of line. The customer just got upset and they’re complaining to a regulatory commission or to our clients themselves. It’s a good control to have in place to make sure everyone’s doing what they’re supposed to be doing.”

The recordings also enable supervisors to critique collection staff members.Cover July 2008

“It’s a great training tool for us,” he says.

Clients include transportation companies, insurance, media, lenders, and commercial leasing.

With baby boomers aging, there likely will be a greater need for wheelchairs, walkers and medical beds. Commercial debt collectors might go after doctors who fail to pay for equipment and products manufactured by a collection firm’sclients. But they don’t try to collect from patients who owe doctors.

“The bottom line in our B2B world, first and foremost, is dispute resolution,” Hollerbach says. “We take the emotion out of the transaction, and we allow each party to understand the importance of resolution. From a client’s perspective, it is obviously to get paid. From a debtor’s perspective, there was something that went wrong. We have to bring both sides together to figure out what went wrong and how we’re going to get past it.”



AZ Business Magazine July 2008 |