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Category Archives: Finance

Fixed Assets And Quickbooks

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I. Definition of a Fixed Asset

Using the acronym T.I.M.E. we can define a fixed asset pretty easily. A Fixed Asset is Tangible. It is real property, you can touch it. Items like goodwill are intangible. Goodwill is the amount a person would pay over the actual value of a business because of it’s good reputation, location or name. There is no definitive amount that can be assigned to the goodwill category in any transaction as it is a subjective value.

A Fixed Asset is Inventory NOT!. Okay there’s a little bit of license taken with this one, but otherwise, the acronym doesn’t work. Inventory is not a fixed asset and should never be considered as such. Inventory is part of the Cost of Goods Sold account.

A Fixed Asset is Material in value. I had a client at one point that tried to depreciate a $300 software package for ten years. If the asset is under $500, put it in as an expense not a fixed asset. If it is over $1000 it should be depreciated. Amounts in between can arguably go either way depending on the asset itself. Ask your tax professional for the best advice.

A Fixed Asset’s Estimated Life Span is greater than 1 year. In other words, printers, computers, vehicles, buildings all last longer than one year (unless it’s a Ford) okay that was a joke. If the asset isn’t expected to last longer than one year, it is not a fixed asset.

II. Fixed Asset Cost

Go to the List menu and click on the Chart of Accounts to open it. Hit CTRL and N for a new account and select fixed asset. Ideally this is done in the year of purchase when entering into Quickbooks, if it is not, then click on the opening balance and enter the cost of the fixed asset at the time of the purchase.

I find it helpful to actually create one fixed asset account for the item and to enter the cost and other information in a sub-account under that item to help keep track of everything in a more orderly way, which helps if you have more than one fixed asset. It is important to use the total amount of the cost, not the amount financed as the depreciation is based on total cost, we will deal with the amount actually owed later in this article.

III. Fixed Asset Accumulated Depreciation

Vehicles can be depreciated from 5 years of the date of purchase. Computers and certain tools can be depreciated over 3 years as they do not tend to last for 5. Buildings can be depreciated over a period of 27.5 years. The different kinds of depreciation include straight line, double declining balance, etc and they would be a subject of a new article. (Depreciation versus Section 179 – coming soon)

Create another Fixed Asset account, again in a sub-account under the item and name it as below:

Vehicle

Vehicle Cost

Vehicle Accumulated Depreciation

If the description of the item is too long, Quickbooks will abbreviate it for you, just make sure you understand what it is for, Vehicle – Acc. Dep would work just as well. Accumulated Depreciation is entered as a negative figure that reduces the value of the item being depreciated. With vehicles you have to calculate what the value of that vehicle would be in 5 years, you can use http://www.bluebook.com to find a 5 year old vehicle of similar make and model and use that figure. In other words, if your $20000 vehicle will be worth $5000 in five years, you depreciated the difference of $15000 over that five year period which would be $3000 of accumulated depreciation per year. (or $250 a month if you want pinpoint accuracy during the year. It is best to use the registers to enter Accumulated Depreciation, no payee is necessary as this is not a monetary transaction here, you are just removing the value of the fixed asset and assigning it to an account. Which account?

IV. Depreciation Expense

The account you use to assign to the accumulated depreciation is the depreciation expense account. And again, I find it helpful to have Depreciation Expense be the parent or main account and create a sub-account for each fixed asset you are depreciating so you can keep track of each fixed asset’s useful life and the amounts being depreciated. This will help you keep a good eye on fixed assets that you will need to replace soon.

V. Fixed Assets and the Loans That Go With Them

Most business owners do not have the capital to pay cash for their fixed assets, and in a lot of cases it is not to their advantage to do so. So how do you handle the loan? Return to the chart of accounts and hit CTRL N to create a new account which will be a Long Term Liability account. Enter the amount still owed as your opening balance and your as of date. Still using the Vehicle example, it would be:

Vehicles

Vehicle Loan – 20000

Enter a bill for the payment amount when you receive it. And check for the breakdown of what interest you are paying versus what is actually going to the principle of the loan. Apply the principle amount to the Vehicle Loan account on the check or bill and if you have not created an interest account, then do so. Break it down for each item or fixed asset you are paying interest on. This would not be where to put Credit Card Interest, make sure that it’s in a separate category.

Interest Expense 2338

Vehicle Interest 350

Equipment Interest 888

Building Interest 1100

Credit Card Interest 430

Each time you issue a check, the principle amount should be deducted from what you owe on the vehicle and the statements you are sent should reconcile nicely.

Just a note for those who are financing a car through a credit card company, make sure that you are not recording it as a credit card payment, make sure that the fixed asset information is entered and accurate otherwise you could be losing the advantage of depreciation expense being deducted from your taxable income. And keep an eye on those fees from credit card financiers as they tend to fluctuate wildly in everything from interest paid to fees they charge you for the privilege of paying them over the phone or online. This is money not going toward paying off the vehicle and is more of a detriment to your financial picture than it is an advantage.

A number of these companies have been guilty of adding unnecessary fees to make repayment of the loan extremely expensive. One company in particular has a payment office in Miami and one in San Diego. Where does a customer in Miami have to mail his payment to? San Diego. Why? Because there is a greater chance of being able to charge you a late fee, even if the payment is mailed on time. They are predators, so beware!

[ad_2] Source by David S Roberts

How to Read a Balance Sheet

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Reading or analyzing your balance sheet may sound a bit intimidating, like it’s something stock analysts and bank managers do. I’d like to bring it much closer to you and help you become familiar with it so you can use it as one of your business tools.

Preparing Accurate Financial Statements To begin, we have to get accurate financial statements for your business. It’s not always as easy or as obvious as it sounds. Many small business owners, when they first come to me, complain about not having a correct balance sheet. They had a family member take care of their books and that person had just the very basic knowledge of QuickBooks and knew how to input invoices and pay bills.

In order to prepare accurate financial statements for a business, a bit more accounting knowledge is needed. So, let’s make sure we have that first.

Reading a Balance SheetNow we can start by understanding its main categories – assets, liabilities and equity. It’s really all very logical and intuitive. Assets are simply things your business owns, liabilities are the company’s debts and obligations and the equity is the residual value. Your balance sheet must always balance and the equation is:

Assets = Liabilities + Equity

Assets and Liabilities are further divided into short-term and long-term categories. Everything which comes due within 12 months or the operating cycle is considered short-term.

Examples of current (short-term) assets are: cash, marketable securities, accounts receivable and inventory.

Long-term assets can be items such as: property, plant & equipment (land, buildings, equipment and vehicles) and intangible assets (ex. goodwill and trademarks).

On the liabilities side, we have the current category typically composed of: accounts payable, current portion of long-term debt, unearned revenues, taxes payable and accrued wages.

And here are examples of long-term liabilities: long-term notes payable and bonds payable.

The equity section usually contains the following: common stock, retained earnings and net income for the period. The equity section will be different depending on the legal structure of the business.

Balance Sheet AnalysisIf you are looking at only one period, you analyze it vertically, as opposed to comparative analysis when you are looking at two or more periods.

The best way to read and analyze a balance sheet is using ratios, because absolute numbers don’t tell the whole story and do not capture the important relationships between the different components of the balance sheet and therefore the business.

Ratios, on the other hand, are like barometers, helping you stay on track and warning you when things start going in the wrong direction.

The most important ratios are:

Current ratio = Current Assets / Current LiabilitiesQuick Ratio = Current Assets less Inventory / Current LiabilitiesNet Working Capital = Current Assets less Current LiabilitiesDebt to Asset Ratio = Total liabilities / Total AssetsDebt to Equity Ratio = Total liabilities / Shareholders Equity

[ad_2] Source by Lucy Rudnicka

Which Groups Will Be Interested in Which Financial Ratios?

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Interest Group – Ratios to watch

Investors – They look for the following ratios, mainly:

1. Return on Capital Employed 2. Earnings per Share 3. Dividends per Share 4. Dividend Yield 5. Interest Cover 6. Liquidity 7. P/E Ratio

Lenders – these groups mainly worry for the following ratio:

1. Gearing ratios 2. Interest cover 3. Dividend payout ratio 4. Dividend Cover 5. Dividend Yield

Managers – Since they are mostly worried about the company performance and hence look for:

1. Profitability ratios 2. Asset turnover ratios 3. Stock, debtors and creditors turnover ratios 4. Liquidity ratios 5. Investor ratios

Employees – being very innocent and worried about their being in the firm, mainly look for:

1. Return on Capital Employed 2. Profitability 3. Cash flow figures 4. Investor ratios

Suppliers and other trade creditors – are much worried about the credit lending and recovery of their investment so mainly look for:

1. Profitability 2. Liquidity 3. Creditors’ turnover 4. Working capital management

Customers – mostly worried about nothing but:

1. Profitability 2. Liquidity 3. Return on Capital Employed

Governments and their agencies:

1. Profitability 2. Liquidity 3. Return on Capital Employed

Local community – this could be a long and interesting list and hence we can say they’d look for almost everything.

Financial analysts – the majority of all ratios.

Environmental groups – they are much worried about the following:

1. Expenditure on anti pollution schemes 2. Expenditure on animal based research 3. Donations to charities and political organisations

Researchers – depends on the purpose of their study on and about that firm. These could be biased as well, sometimes.

[ad_2] Source by Er Manoj Kumar

How to Nail Your Investment Banking Interviews

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Ok, so you’ve got your big interview at that Investment Bank you’ve wanted to work at since you first heard of it. How do you prepare?

The thing is, not all investment banks are the same and you can’t always tell what’s going to happen in every interview.

To be honest though, there is a way to almost guarantee your success and that’s by anticipating what’s going to go down at your interview and preparing for it in advance.

First, let’s be clear. Fit questions will always be more important than the investment banking technical questions. I mean, these people don’t expect you to know it all when it comes to the financial world. They do expect you to have a good knowledge of it, but what they’re looking for the most is whether you’ll be a good addition to their firm.

The way you can tick all their boxes is to come across interested in business and the financial world, and also willing to learn and eager to work hard. Also, when you get asked the requisite questions on what you would do in certain situations, make sure you give examples from your own life. Hint: have 4-5 stories accentuating your relevant strengths – this will set you apart.

But the way to almost guarantee your success with investment banking interview [http://www.ibinterviews.com] questions is to be enthusiastic about what you’re saying. Interviewers cannot resist someone with FIRE, someone who’s positive, great to get along with.

Here’s the key: Make them want to work with someone like you.

Another good thing to do is to be prepared for all the logistics. You should be prepared to speak with a banker in every level of the firm at some point. We’re talking analysts, associates, VP’s and perhaps MD. You should be ready to have a very high-pressured day, full of interviews, tests, group exercises and assessments. Make sure you arrive on time in the morning and socialize with the other candidates. People will be watching you, so you should be at your most social and professional.

So in summary, prepare for the investment banking interviews in advance, link the fit questions back to your own experiences, be personable and charming and think about the logistics on the day itself. You’ll be getting investment banking job offers in no time!

[ad_2] Source by Brett J. Riley

Financial Analysis for Office Lease Transactions

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MAKING INFORMED LEASE DECISIONS

Financial Analysis is defined as the set of principles, procedures and tools that help organize and interpret financial data. Making informed real estate decision requires utilizing economic models designed to improve the quality of the lease or facility decision. More than just a software program, this analysis is the product of formal training in finance combined with years of experience in the commercial real estate marketplace.

EVALUATING LEASES

The decision to renew a lease or relocate your office facilities requires thorough financial analysis of the anticipated lease costs within the marketplace. This requires the technical ability to analyze the cost associated with various facility decisions. To assist in the decision making process it is prudent to compare “Occupancy Costs” of various alternatives in an “apples to apples” format. This approach is important because what often appears to be the most economical deal on the surface in reality may not be the best alternative after evaluating all economic components of the proposed transaction.

Although the concept of leasing office space is simple, commercial leases have an increasingly complex financial structure. How does a tenant go about determining the true cost of such a lease? A typical office building lease may include the following:

  • Base Rental Payments (fixed or escalated)
  • Additional rent provisions for increases in operating expenses
  • Caps or ceilings on operating expense escalations
  • Periods of abated or reduced rent
  • Contributions (loans) by the landlord for leasehold improvements, architectural fees, IT cabling, moving expenses, leasing commissions and existing lease obligations
  • Parking charges
  • Various options (renewal, expansion, contraction and cancellation)
  • Electrical Capacity (watts per square foot) and H.V.A.C. charges
  • Add on Factors (Rentable vs. Usable Square Feet)
  • Costs to comply with government regulations (ADA )
  • Fees for Construction Management
  • Interest fees for above standard leasehold improvements

COMPARING OCCUPANCY COSTS

Once occupancy costs associated with various lease alternatives are identified and the underlying economics of the proposed lease transaction are understood, the projection of the total occupancy costs over the term of the lease and on an annual basis is calculated. These projected annual cash flows are subjected to discounted cash flow analysis (net present value) at an appropriate discount rate (cost of capital) to account for the time value of money. The results are the Net Present Value or “the price of the deal”. To clarify for comparison purposes, I express the discounted present value of the lease as a level rate per square foot which enables the tenant to measure the financial structure of the lease proposals on an “apples to apples” basis. The impact of income taxes can be accounted for by discounting cash flows at a rate reflective of the tenant’s after tax cost of debt.

When comparing alternatives, occupancy cost levels both absolute and present value basis are analyzed in terms of rentable and usable square feet to account for differences in common area factors and space efficiency. The result is the “effective occupancy cost per square foot” which provides a meaningful comparison of various lease proposals.

Today, technology provides us with the software to easily implement the financial analysis of lease transactions. Popular software programs include LseMod and ProCalc. However, it is important to understand the principles of this analysis and how various cash flows impact the overall cost particularly when it comes to the art of negotiation.

FINANCIAL ANALYSIS AS A NEGOTIATION TOOL

Effective negotiations require a thorough understanding of the underlying economics of the transaction. I believe great deals are not only found but also negotiated. My financial skill allows me to measure the impact of various economic components on the value of the lease and to quantify the landlord’s effective rental rate. In essence, the landlord’s effective rental rate is the net profit level from the lease before the building’s debt payments expressed on a square foot basis. By viewing the lease from the landlord’s perspective it is relatively simple to benchmark the landlord’s projected return and measure the impact of various changes in financial components of the lease on the landlord’s bottom line. While comparing rental rates and negotiated concessions to other transactions in the market is an excellent indicator of achievable terms the landlord’s effective rate is where the rubber meets the road. No two lease transactions even with identical rental rates yield the same return to the landlord. My objective is structure a “win – win” transaction while not leaving any money on the negotiation table. Evaluating the landlord’s effective rate during negotiations is a key tool in determining the landlord’s bottom line.

[ad_2] Source by Coy Davidson