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Financial Guidance to Help Your Business Succeed

Archive for August, 2015

ERM: An easy way to get risk under control

Posted by admin On August 13th

ERM: An easy way to get risk under control


Perhaps, after a couple of rough years, your company is finally back on solid financial footing. Or maybe you recently resolved a potentially ruinous lawsuit. Your business’s future looks bright again — then cyber criminals hack into your network and steal all of your customer data.

You’ll never be able to prevent every risk from becoming reality, but you can — and should — take steps to manage potential perils. Among the most popular approaches is enterprise risk management (ERM).

How it’s different

Unlike traditional risk management techniques, which often are informal and “siloed” (meaning that each department focuses on minimizing its own risks), ERM is an integrated, companywide process. ERM assumes that all risks are related — that, for example, lax controls in your accounting department may enable fraud in receiving and, in turn, raise your business’s overall expenses.

ERM isn’t about eliminating every risk. It helps you clarify your company’s appetite and capacity for specific risks so you can develop a cohesive philosophy and plan for how they should be handled. In other words, ERM enables you to find an acceptable level of risk that allows you to promote your company’s strategic objectives.

Let’s say you run a pharmaceuticals company that has a new asthma drug. Many possible perils lie in wait as you conduct drug trials, seek FDA approval, establish reliable supply lines and try to avoid liability claims and intellectual property theft. Unfortunately, if you want to get your drug to market, you can’t avoid such scenarios. You need to minimize the risks inherent in a new product rollout and limit potential damage.

Making your list

ERM implementation starts at the top of your organization. Owners and executives must understand the need for ERM so they can sell it to their subordinates.

Once you have management buy-in, assemble a list with input from every division and department. Start with risks that endanger companies of all sizes and sectors, such as those involving finances, IT, natural or manmade disasters, regulatory compliance, and supplier and customer relationships. Then move on to company- or sector-specific risks.

Once your risk list is robust, rank items based on likelihood and impact. Then analyze worst-case scenarios for each one. If the list seems overwhelming, assign each risk to an “owner” who will be responsible for analyzing and monitoring it.

Enterprisewide view

Ultimately, you must come up with ways to manage your biggest threats. Do this by building on current risk management practices, such as audits, insurance coverage and internal controls. You can gradually incorporate an enterprisewide view of risk to make these activities into a true ERM process.

ERM software can help. If employees understand the software application and use it regularly, ERM will become part of their jobs. For you, frequent monitoring of important metrics is an integral part of keeping up with ERM. Many software packages come with “digital dashboards” that keep critical risk-related information instantly accessible on your computer’s desktop.

Incremental approach

You don’t have to implement every component of an ERM program at once. An incremental approach that begins with relatively simple processes and builds the program over time is easy to adopt and can be very effective.

Estate planning

Noncitizen spouses need special tax tools




Although U.S. citizens must pay federal gift and estate taxes on their assets, they enjoy important exemptions, exclusions and deductions — particularly if they’re passing assets to a spouse. But what if you or your spouse is a noncitizen? Different rules apply that can make estate planning trickier.

Citizens vs. residents

Generally, U.S. citizens are subject to federal gift and estate taxes on all of their assets, wherever they’re located. But they’re also entitled to the:

  • Gift and estate tax exemption (currently $5.43 million),
  • Annual gift tax exclusion (currently $14,000 per year per recipient), and
  • Unlimited marital deduction, which permits one spouse to transfer tax-free any amount of property to the other spouse during life or at death.

U.S. residents are treated similarly to U.S. citizens by the IRS. They’re subject to federal gift and estate taxes on their worldwide assets, but can also take the estate tax exemption and annual gift tax exclusion.

IRS regulations define a U.S. resident for federal estate tax purposes as someone who had his or her domicile in the United States at the time of death — even if the deceased lived there only briefly. To determine residency, the IRS analyzes various factors, including the relative time spent in the United States, the locations and values of residences, visa status and community ties.

Rules for nonresident aliens

Tax treatment of nonresident aliens — individuals who are neither U.S. citizens nor residents — is a little different. On the positive side, they’re subject to U.S. gift and estate taxes only on property that’s “situated” in the United States and they’re eligible for the gift tax exclusion.

However, nonresident aliens can’t use the marital deduction (see the sidebar “No marital deduction? A few solutions”), and their estate tax exemption is only $60,000. So substantial U.S. property holdings can result in a big tax bill. Taxable property includes U.S. real estate and tangible personal property located in the United States. Determining whether intangible property such as stocks, bonds and partnership interests is taxable is more complicated. Some may be subject to gift, but not estate, tax and vice versa.

Explore alternatives

If you or your spouse is a noncitizen, traditional estate planning tools may not adequately minimize your gift and estate tax exposure. Your advisor can help you explore alternative estate plans. 


No marital deduction? A few solutions

The unlimited marital deduction, which allows a spouse to transfer tax-free any amount of property to the other spouse, isn’t available for gifts or bequests to nonresident aliens. However, a U.S. citizen or resident spouse can make tax-free transfers to a non citizen spouse by 1) using his or her $5.43 million exemption, 2) making annual exclusion gifts (currently, the limit for gifts to a non citizen spouse is $147,000), or 3) bequeathing assets to a qualified domestic trust containing certain provisions.

Note that non citizens can use the marital deduction to make transfers to U.S. citizen or resident spouses.

Which home renovation projects pay off?

Posted by admin On August 13th

Which home renovation projects pay off?




Money spent now on an addition or bathroom remodel is sure to be recouped when you sell your home, right? Unfortunately, no. The truth is that very few homeowners completely recover the costs of their remodeling projects. For 2015, the average cost-to-resale-value ratio for remodeling projects is 62.2%, according to theCost vs. Value Report from Remodeling magazine.

The most financially rewarding projects tend to be smaller, such as replacing windows, entry and garage doors, and kitchen appliances, countertops and cabinet fronts. Exterior projects that typically stretch your renovation dollar include installing new roofs, fiber-cement siding and manufactured stone veneer.

If you have your heart set on building a master bed and bath addition or splashing out on a luxury kitchen, do it. But you should know that such projects are unlikely to increase the value of your home commensurately. Of course, remodeling cost-to-value rates vary according to region (they’re higher in Western and some Southern states), the quality of the work and neighborhood standards. 

Keep sales stars with the right compensation plan

Posted by admin On August 13th

Keep sales stars with the right compensation plan

People with arrow



As the U.S. economy strengthens, don’t be surprised if your best salespeople ask for a raise — and if they don’t receive it, leave for greener pastures. To keep good people, you not only need to offer a compensation plan that acknowledges job market competition but also motivates your sales staff to work hard, focus on customer satisfaction and remain loyal to your company.

Pros and cons

Traditionally, companies have offered salespeople salary or commission. Each has advantages and disadvantages.

A straight salary or hourly wage provides employees with a stable income, which is particularly welcome in industries with seasonal swings. Salaried sales staff also have less incentive to sell customers unneeded products and are more likely to cooperate with each other. For employers, fixed compensation costs make budgeting and forecasting easier. The downside? Salaries don’t necessarily motivate aggressive selling.

Commissions — paid either as a percentage of sales or profit margin — tend to motivate salespeople to develop their sales skills and pursue leads enthusiastically. However, commission-only compensation can encourage salespeople to focus only on big sales, make promises your company can’t keep or sell products customers don’t need.

Combination approach

Salary or commission may work in certain industries or companies. But most businesses find that a combination approach — a low base salary plus commission — creates security for salespeople while motivating them to step up their game.

To further encourage high achievement, think about paying your staff bonuses based on company performance, but tied to individual achievement. For example, everyone might receive a certain minimum bonus, but one or two star salespeople might be awarded an amount several times the minimum.

If you decide to add bonuses to your compensation program, consider basing them on profit rather than revenue. This gives sales staff an incentive to hold down expenses and cooperate with other employees. And if you want to emphasize short-term objectives over long-term ones, offer quarterly instead of yearly bonuses, or vice versa.

Review and revise

Determining what combination of salary, commission and bonuses will motivate performance and reward loyalty generally involves some trial and error. At the very least, review your sales compensation plan annually or whenever you adopt new strategic objectives or change product and service lines.