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The Business and Accounting Advisor

Business survivability in this economy is difficult at best. This blog will offer useful business and accounting advise and ideas for ongoing business and competitive advantage.

26 more days until the Business Advisor arrives.

May 22nd, 2011 at 2:46 pm by glennsmith
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Does your balance sheet cost you money? Are your net credit sales actually hurting your business? Can better sales cause worse damage to a business? Answers are coming. 26 more days until the Business Advisor arrives.

What is your money really worth. Does the balance sheet really reflect a true historical record of your business? There are many accounts that are reflected both in the income statement as well as in the balance sheet that may seem to report correctly but due to the time value of money principle may not be accurate. What is the time value of money? It is the principle that states that a dollar received at some future period is not the same as a dollar received today. The dollar received today can be invested and therefore is worth more than the dollar received in the future. Thus we have the problem with many accounts such as accounts receivable. If your business accepts credit payments for example the value of the money received when the account comes due will not be the same as cash received today. Accounts receivables must be valued both for time value changes which can vary greatly during inflationary periods but for bad debt expectations.

Nissin and Mehumad (2008) argue that revenues are reported  undiscounted which ignores the time value of money principle. This means that if you are accepting credit sales and not considering a time value factor your net profit may be incorrect and you may be paying more taxes than you are required to. No one wants to pay excess tax and that is one area that I make my specialty, fighting for the rights of businesses to only pay their fair share of taxes. Accounts receivables being reported undiscounted overstates the actual value of the asset causing unfavorable situations for businesses. Accounts receivables may never be paid. This is considered a risk that cash flow may not be available and causes many businesses hardship and even insolvency.

Deferred taxes are also reported with no discount for time value of money. The tax benefit received in the future from 1-20 years is not the same as a discount received this year. This distortion can be huge if we factor in depreciation. If a company is purchasing new assets with long depreciation periods the tax savings for depreciation can be deceiving with no factor for time value.

Napier (Napier, 2009) argues that Pension accounts are one example of accounts that must be considered using the valuation of time model. Pensions are typically a liability that must be paid out in the future but as the present value of a dollar is greater than future value the same works in reverse for future value. Time value of money is a factor that is considered with pension accounts. Bond accounts are considered with time money valuation measurements along with Pensions. These are very similar accounts. Bonds are considered with aggregate factors of time value, expected inflation and expectations of default.

There are many accounts that can be undervalued or overvalued because time money factors are not taken into consideration. Don’t get caught short, make sure you have the information for what is coming in the future. The business advisor is here for you. 26 more days until the business advisor arrives.

Melumad, N. D., & Nissim, D. (2008). Line-Item Analysis of Earnings Quality. [Article]. Foundations & Trends in Accounting, 3(2/3), 87-221. doi: 10.1561/1400000010

Napier, C. J. (2009). The logic of pension accounting. [Article]. Accounting & Business Research, 39(3), 231-249.

Business Advisor Coming

May 20th, 2011 at 10:22 pm by glennsmith
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May 20, 2011

28 days from now. What will it be? How will it help.

Dear Business Advisor,

“We want to thank you for saving us thousands of dollars and helping our business not only survive but thrive through the recession. We are so glad you are coming. We will be waiting with baited breath. Looking forward to great things”.- Keri Langton

Dear Business Advisor,

“Can you help us to know how to survive our competitive market? With so many businesses in competition with us what can we do to set ourselves apart? Can you help.” – Doug Faltor

Dear Business Advisor,

“We need help understanding the political environment. How do we work with the local municipal, and county governments and politicians to find the right lands to purchase to help our businesses grow? Please give us advise. We know you and we know you know. What politician’s who are up for election this year can we truly trust? Do any of them even care about business in Maple Valley and Covington? Please advise.” – Brian Wilcox

What will come in 28 days? These answers and many more.

Do you have questions? Please feel free to comment and you will find answers.

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