Author: Service2Client

Social Media Marketing: A Game-Changer for Business Growth

4 min read

How to Social Media MarketingSocial media has evolved from a simple networking platform to a powerful business tool. Businesses today use these platforms with billions of active users worldwide to connect with their target audience. Social media allows businesses of all sizes to reach audiences in a way that traditional advertising, such as print or television, cannot.

The Role of Social Media Marketing in Business Growth

Social media marketing uses social media platforms such as Facebook, LinkedIn, Instagram and TikTok to promote a business’ products or services. This is done through sharing content like posts, videos and ads to engage a targeted audience and eventually make sales.

With 5.22 billion social media users as of October 2024, businesses can reach customers around the world with ease. The platforms are also suitable for sharing information, enabling companies to communicate with customers about promotions, events or new products or services.

Each platform offers different strengths, and a business can choose which ones suit its target audience. For instance, LinkedIn is more professional and a good platform for B2B opportunities. On the other hand, TikTok and Instagram are suitable for visual storytelling, making them good places to showcase products.

Benefits of Social Media Marketing

Some of the key benefits of marketing on social media include the following:

  1.  Increased Brand Awareness
    Consistently and strategically posting on social media enhances brand visibility. A brand gains recognition as users engage with the content through likes, comments, and shares. Content that goes viral expands a business’ reach, introducing new audiences to the brand.
  2. Improved Customer Engagement
    Social media gives businesses a direct line to customers. Whether replying to comments or through direct messages, these interactions help build trust and create a sense of loyalty. This two-way communication gives businesses a better understanding of customers’ needs while also allowing them to respond quickly to inquiries and feedback.
  3. Cost-Effective Advertising
    Unlike traditional advertising, social media offers cost-effective marketing solutions. With social media, a business can run targeted ads based on demographics, interests or behaviors. This ensures they reach the right audience without wasting resources. This makes it possible for small businesses to leverage paid campaigns to increase their reach while staying within their budget.
  4. Measurable Results and Analytics
    Social media marketing offers the ability to measure results through built-in analytic tools. A business can monitor follower growth, engagement rates, link clicks, and conversions. Such data-driven insights help businesses identify what is working, fine-tune their strategies, and continuously improve their campaigns.
  5. Drive Website Traffic and Sales
    Sharing links to a business website on social media drives traffic to the site and increases conversions.

Social Media Strategies that Help in Business Growth

  1. Content Marketing
    Creating engaging content is crucial in social media marketing. This involves using text, videos, images and infographics to capture the audience’s attention. One powerful tool in content marketing is storytelling – using emotional and relatable stories to connect with audiences will enhance loyalty and trust.
  2. Influencer Marketing
    Influencers have huge followings, and their endorsements can significantly help a business. However, partnering with the right influencer is important to attract new customers and boost credibility.
  3. Paid Ads and Promotions
    With paid ads, a business targets specific audiences in terms of location, age and interests. Social media also enables retargeting campaigns, which remind users about products they have previously viewed.
  4. Community Building
    Social media allows a business to create a community for long-term relationships. This is done through creating groups or pages. These communities develop a sense of belonging, and customers are more likely to engage with the business over time and recommend it to others.

Challenges and How to Overcome Them

  • Staying Relevant in a Crowded Space
    Many businesses compete for customer attention, and standing out can be challenging. Therefore, businesses should keep up with social media trends, experiment with new formats and regularly update their strategies to align with changing consumer preferences.
  • Managing Negative Feedback Publicly
    Businesses may face criticism or negative feedback. Handling these situations professionally is crucial. It calls for prompt responses that show empathy and a willingness to resolve issues. This demonstrates accountability, which can turn a negative experience into an opportunity to build trust.
  • Creating Consistent Content
    Maintaining a steady flow of content can be overwhelming, especially for small businesses. Content calendars and automation tools can help plan posts in advance, ensuring consistent engagement without added stress. Repurposing existing content across platforms is another way to save time and effort.

Conclusion

Social media marketing has become a game-changer for businesses seeking growth in the digital age. It provides cost-effective ways to build brand awareness, engage with customers, and measure real-time success. However, success requires more than just presence – it demands strategic planning, creativity, and adaptability to overcome challenges and maintain relevance.

2025 Federal Income Tax Brackets

2 min read

2025 Projected Tax BracketsAccording to estimates, inflation adjustments to the Internal Revenue Code are expected to yield increases of 2.8 percent compared to 2024 amounts. This means wider tax brackets and increased exemptions, among other things. With the U.S. Bureau of Labor Statistics consumer price index (CPI) moderating, this increase is about 50 percent less than 2024’s inflation adjustment. Below, we’ll look at what the projected 2025 inflation adjustment means in terms of dollars and cents for you and your taxes.

Individual Income Tax Brackets

The tables below illustrate the individual income tax rates and brackets for 2025.

Individual Income Tax Brackets & Rates: Tax Year 2025

Single Taxpayers
10% 0 – $11,925
12% $11,926 – $48,475
22% $48,476 – $103,350
24% $103,351 – $197,300
32% $197,301 – $250,525
35% $250,526 – $626,350
37% $626,351 and Over

 

Married Filing Jointly
10% 0 – $23,850
12% $23,851 – $96,950
22% $96,951 – $206,700
24% $206,701 – $394,600
32% $394,601 – $501,050
35% $501,051 – $751,600
37% $751,601 and Over

 

Married Filing Separately
10% 0 – $11,925
12% $11,926 – $48,475
22% $48,476 – $103,350
24% $103,351 – $197,300
32% $197,301 – $250,525
35% $250,526 – $375,800
37% $375,801 and Over

 

Heads of Household
10% 0 – $17,000
12% $17,001- $64,850
22% $64,851 – $103,350
24% $103,351 – $197,300
32% $197,301 – $250,500
35% $250,501 – $626,350
37% $626,351 and Over

 

Trusts & Estates Tax Brackets

The table below illustrates what the income rates and brackets are expected to look like for Trusts and Estates in 2025.

Projected Trusts and Estates Tax Brackets & Rates: Tax Year 2025
10% 0 – $3,150
24% $3,151- $11,450
35% $11,451 – $15,650
37% $15,651 and Over

 

Standard Deduction Amounts

The table below illustrates what the projected standard deduction amounts will be for 2025, with a comparison to 2024.

Projected Standard Deduction Amounts
  2024 2025
Single $14,600 $15,750
Married Filing Jointly $29,200 $31,500
Married Filing Separately $14,600 $15,750
Head of Household $21,900 $23,625

 

Alternative Minimum Tax (AMT)

The table below illustrates the anticipated AMT exemptions for 2025.

AMT Exemption Amounts
Tax Year 2025
Single $88,100
Married Filing Jointly $137,000
Married Filing Separately $68,500
Trust & Estates $30,700

 

Capital Gains

The rates applied to long-term capital gains are not expected to change for 2025; however, the brackets that apply to different rates will expand. Note that, in considering the table below, a 20 percent tax rate applies to capital gains that are over the 37 percent ordinary tax rate threshold. Furthermore, capital gains on art and collectibles are subject to other exceptions.

Maximum Capital Gains Rates for 2025
  Zero Rate 15% Rate
Single $48,350 $533,400
Married Filing Jointly $96,700 $600,050
Married Filing Separately $48,350 $300,000
Head of Household $64,750 $566,700
Trusts & Estates $3,250 $15,900

 

Conclusion

First, it’s important to remember that all the figures above are only projections. The IRS will not publish the official numbers until later this year. Moreover, as these rates and brackets have increased, they have done so significantly less than in 2024 and 2023, largely driven by lower inflation.

Protections for Election Candidates and the Electoral Process; Improving Programs for Veterans and American Indians

3 min read

hr9106, hr6513, s1549, s656, s70Enhanced Presidential Security Act of 2024 (HR 9106) – During an election year, the Department of Homeland Security identifies major presidential and vice-presidential candidates in consultation with a committee of congressional leaders. This bipartisan bill instructs the U.S. Secret Service to use the same criteria for establishing the level of protection for major candidates as provided for presidents and vice presidents. The bill was introduced by Rep. Michael Lawler (R-NY) on July 23. It passed in the House on Sept. 20, in the Senate on Sept. 24, and was signed into law by the president on Oct. 1.

COCOA Act of 2024 (HR 6513) – This bipartisan Act, titled the Confirmation of Congressional Observer Access Act, was introduced on Nov. 30, 2023, by Rep. Mike Carey (R-OH). It was passed in the House on Sept. 9, in the Senate with changes on Sept. 24, and cleared the House with changes on Sept. 25. The president signed it into law on Oct. 4. The bill requires states to designate congressional election witnesses to observe the administration procedures of federal elections, including casting, processing, scanning, tabulating, canvassing, recounting, auditing and certifying ballots during the pre-and post-election period. However, the bill prohibits the observers from handling any ballots or equipment, advocating for a particular candidate, issue, or party, or interfering with the election process in any way. Election officials are further authorized to remove any designated observer who does not follow the guidelines detailed in this bill.

Congressional Budget Office Data Access Act (S 1549) – The Privacy Act of 1974 generally requires written consent before a federal agency is allowed to disclose certain personal records. However, some agencies are exempt from this requirement, including the Government Accountability Office and the National Archives and Records Administration. This bill designates the Congressional Budget Office (CBO) to be exempt as well in an effort to expedite sharing between the CBO and federal agencies. The bill passed in the Senate on June 22, 2023, in the House on Sept. 23, 2024. It was signed into law on Oct. 2, after having been introduced by Sen. Gary Peters (D-MI) on May 10, 2023.

Veteran Improvement Commercial Driver License Act of 2023 (S 656) – This Act was introduced on March 6, 2023, by Sen. Deb Fischer (R-NE). It provides guidelines to approve assistance by the Department of Veterans Affairs (VA) for commercial driver education programs. The requirements include appropriate licensing and usage of the same commercial driver education curriculum as other approved institutions. The bill passed in the Senate on Nov. 2, 2023, the House on Sept. 25, 2024, and was enacted into law on Oct. 1.

Tribal Trust Land Homeownership Act of 2023 (S 70) – This bill was introduced by Sen. John Thune (R-SD) on Jan. 25, 2023. It requires the Bureau of Indian Affairs (BIA) to process and complete all residential and business mortgage packages within 20 or 30 days, depending on the type of application. It also establishes the position of Realty Ombudsman within the BIA’s Division of Real Estate Services. This is a bipartisan bill that passed in the Senate on July 18, 2023, and currently sits in the House, where it has a high probability of passing before the end of the current Congressional session.

Cash Conversion Cycle (CCC) Defined

3 min read

Cash Conversion Cycle (CCC) DefinedThis metric, which is also referred to as the cash cycle or the net operating cycle, looks at the time a business takes to recover its investment in inventory to eventually sell. The process starts from selling its goods, collecting on outstanding receivables or invoices, and satisfying its operating costs with the sale proceeds. It’s normally measured in days to determine the company’s financial health.

The less time necessary to complete the CCC, the healthier a company is financially because it means the business’ money spends less time tied up in inventory or collecting on outstanding inventory. It’s important to be mindful that different industries have different CCC time frames. Generally speaking, most calculations are done on either a quarterly (90 day) or an annual basis (365 days).

How to Calculate CCC

The formula is as follows:

(CCC) = Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) − Days Payable Outstanding (DPO)

It can be broken down into three different stages:

Stage 1

Days Inventory Outstanding (DIO) looks at how many days the inventory takes to sell to customers. It’s calculated as follows:

DIO = (Average Inventory (AI) / COGS) x Time-Frame (In Days)

AI = 1/2 x (BI + FI)

BI = Beginning Inventory

FI = Final Inventory

It’s important to define COGS, taken from the Income Statement, which is Cost of Goods Sold or the costs personally connected to creation of goods or services (raw materials, labor or electricity). The lower the number, the faster a business is selling its goods.

Stage 2

Days Sales Outstanding (DSO) measures the time it takes the business to collect payment from all outstanding sales completed.

DSO = Average Accounts Receivable (AAR) / Daily Revenue

AAR = 1/2 x (SAR + FAR)

SAR = Starting AR

FAR = Final AR

Accounts Receivable are what companies record on their balance sheet to keep track of what customers owe for the goods delivered or services rendered. The lower the results, the better the company’s cash position is because they’re able to satisfy outstanding invoices.

Stage 3

Days Payable Outstanding (DPO) is the third and final stage that calculates how much businesses owe to their suppliers the business has sourced input materials from, within the time frame the suppliers’ invoices are due.  

DPO = Average Accounts Payable (AAP) / Daily COGS

Where:

AAP = 0.5 x (SAP + FAP)

SAP = Starting AP

FAP = Final AP

COGS = Cost of Goods Sold

There are different ways to interpret the DPO result. A low DPO means the business is taking care of its bills from suppliers. However, potential investors, internal managers, and supervisors can see if the business can either negotiate lengthier payment terms while still maintaining good terms or if the company negotiates early payment terms or invests the money on a short-term basis to earn more for the company before paying suppliers’ bills. A high DPO, after an investigation of a company’s financials, might show the company is taking longer than its peers to pay creditors.

While calculating the CCC is relatively straightforward, the more complex process is interpreting it correctly and using judgment for a business based on industry averages and how the numbers relate to current economic conditions.

Breaking Down Bill-and-Hold Arrangements

3 min read

What are Bill-and-Hold ArrangementsLooking at accounting and journal entry considerations, if accounts receivables are debited and revenue is credited, it can be interpreted as the business recognizing revenue without the customer paying. As such, the U.S. Securities and Exchange Commission (SEC) sees the potential for intentional manipulation of earnings. It is important to review this type of transaction to see how the U.S. government and accounting standards treat deviations from these activities.

Defining Bill-and-Hold Arrangements

This type of agreement permits sellers to recognize revenue before delivery is made. Instead of shipping the product first, the seller bills the customer first, and delivery is arranged for a future date.

Based upon Accounting Standards Codification (ASC 606-10-55-83) and the U.S. Securities and Exchange Commission (SEC), for a customer to have obtained control of a product in a bill-and-hold arrangement, they must meet all of the following in order to move ownership of the product to the customer, with the seller still in custody of it.

  • Customers have explicitly asked for such an arrangement. Purchasers have to demonstrate a material reason for buying the goods through this route.
  • The goods must be sequestered explicitly for and attributed exclusively to the customer.
  • Customers must be able to physically receive the goods.
  • The separated goods are expressly prohibited from being used for any other purposes, including those of other customers.
  • Purchasers assume all risk.
  • There’s a written, fixed commitment to buy the goods.
  • The ultimate delivery of goods must be done according to a set timeline that follows realistic commercial uses.
  • The finished goods shall be 100 percent finished and be transit prepared.

Illustrating a Bill-and-Hold Arrangement

Companies in commodity-intensive establishments (miners, farmers, etc.) often use heavy equipment to recover and produce outputs. Since a mining or energy company is unsure of the profitability when recovering resources that are price-dependent on dynamic economic conditions, they often enter into a bill-and-hold arrangement with their supplier. Since the steel producer and the drilling company have an existing arrangement with standard terms, there’s an established history of bill-and-hold transactions. If machinery or drilling equipment is fully built for one of these companies, the equipment manufacturer will sequester the equipment and prohibit it from being shipped to any other buyer. Similarly, the invoice for the equipment must be satisfied by the customer in full within 30 days of the equipment being placed and waiting for the resource company buyers. The last step is for the buyer to arrange delivery in a reasonable manner.   

Based on this real-world example, revenue should be recognized once it’s set aside exclusively for a particular mining or natural resource extraction company.

Considerations Beyond the Goods Themselves

Goods producers also must determine if there’s a custodial component during a bill-and-hold arrangement. If a custodial arrangement exists, either part of the original cost of goods sold to the customer needs to be determined or a separate charge, and therefore, exclusive recognition of revenue for the custodial services provided should be addressed outside of the bill-and-hold arrangement.

When it comes to revenue recognition under certain circumstances, goods producers may be able to recognize revenue despite the traditional requirement that goods have left a business, and the seller has materially satisfied their traditional requirement for accounting standards.

5 Tips to Keep End-of-Year Spending Under Control

4 min read

5 Tips to Keep End-of-Year Spending Under ControlIt’s that time of year again. Halloween has just come and gone – and now we’re hurtling headlong into Thanksgiving and Christmas. For holiday shopping, it’s tempting to turn a blind eye and put everything on your credit cards. However, if you don’t want to have a financial hangover in January, February (and so on), you might want to take a look at these tips.

Create a Budget and Stick To It

The earlier you sit down and do this, the better. Decide on a financial cap per gift per person, then shop. Then, get creative. For instance, what if you bought a pre-loved item for someone? Made something for someone? You might also decide on a gift, then shop around and compare. So, when Black Friday and Prime Days raise their heads, you’ll already have made your selections. More on that below.

Put a Lid on Impulse Buying

This is a tough one. As mentioned above, Prime Day and Black Friday are hard to avoid. They scream at you on your TV and phone scroll, so it’s easy to get off track. If you want to avoid runaway spending, here are two ways to approach these retail spectacles. First, you can keep an eye on which item you want – then plan and research. Buy it when the price is crazy low, and walk away from all the frenzy, all the while tracking your spending. Second, you can dive right in, browse all you want, then put some things in your cart. But don’t buy it then. Come back a day later and decide if the purchase is really necessary. At this moment, you might also imagine the pain you could feel in 2025 with a bunch of debt hanging over your head. Employing this mindset could make all the difference.

Use Your Credit Cards Wisely

According to Jennifer Ellis, senior consumer manager at BOK Financial, credit card debt is on the rise. And with high interest rates, if you do have a balance, you’re going to pay more for your items. Before you set out to buy gifts, try to pay your credit card balances in full to avoid big fees. This way, you won’t carry the burden of a lot of debt into the new year.

Try Envelope Stuffing

This is an old trick, but a good one. Get envelopes, put the name of your giftee on the front, then put the amount of money you’re going to spend in it. Once you’ve used up the cash in the envelope for said person, you’re done. Also, using cash is more startling – you see the money go bye-bye! It’s so easy to gloss over the actual cash amount when you’re using plastic, as it almost doesn’t seem real. Working with real moolah is a tried-and-true technique, a wake-up call that you’ll appreciate.

Plan Early for Travel

Buy your tickets early for Thanksgiving and the December holidays. Monitor airline, bus, and train websites. Set alerts to notify you when the prices go up or down. All it takes is a little time and elbow grease. In the end, it’s worth it.

Most importantly, having a financial plan during this time of year is key. Yes, life is busy, but if you want to step into the new year without carrying the shackles of debt, using some of these ideas might be your saving grace.

Sources

https://thestatement.bokf.com/articles/2024/10/the-spookiest-trend-spending-too-much-on-the-holidays 

 

Zero Trust Security Models: The New Standard Against Data Breaches?

4 min read

Zero Trust Security Models: The New Standard Against Data Breaches?As technology evolves, so have data breaches, which have become a significant threat to businesses of all sizes. We frequently hear reports of high-profile attacks on major organizations, global corporations, and even government agencies. Emerging technologies such as generative artificial intelligence and machine learning make cybersecurity more challenging. They enable cybercriminals to automate attacks, create sophisticated phishing schemes, and develop advanced malware to evade traditional security measures. Hence, companies have no choice but to change how they approach cybersecurity.

To deal with these modern threats, Zero Trust security models are gaining widespread adoption as the preferred standard for effectively protecting against data breaches.

What is Zero Trust?

Zero Trust is a cybersecurity framework based on the “never trust, always verify” principle. Unlike traditional models that grant access based on network location, Zero Trust requires continuous verification of each user, device, and application attempting to access resources.

Instead of assuming that someone within the network can be trusted, Zero Trust demands constant authentication and least-privilege access. This means users are granted access to only the data and resources they need to perform their tasks. Basically, every interaction is assumed to be a breach.

How Zero Trust Differs from Traditional Security Models

Historically, businesses operated on a “perimeter-based” approach – trusting everything inside their network and guarding against threats from the outside. However, the once-clear network boundary has become unclear with the rise in remote work, cloud computing, and mobile devices. Breaches today can occur internally, often by compromised accounts, rogue insiders, or lateral movement of malware.

Cyberthreats have become such a huge problem that the U.S. government issued an executive order to help improve the nation’s cyber security by mandating that federal agencies adopt the Zero Trust architecture. This further pushes businesses to rethink their cybersecurity strategies.

Key Components of a Zero Trust Model

Zero Trust models are built on several core principles:

  • Continuous verification – Authentication is ongoing, requiring verification for every request made by a user or device.
  • Least-privilege access – Users receive only the minimum level of access needed to perform their jobs.
  • Micro-segmentation – Networks are divided into smaller zones, limiting the lateral movement of potential threats.
  • Contextual monitoring – Continuous monitoring of users and devices based on context – such as location, device health, and behavior – to identify abnormal activities.
  • Multi-factor authentication (MFA) – MFA requires users to provide two or more forms of authentication, such as a password combined with a biometric factor or a security token.
  • Encryption – All data must be encrypted to protect it from unauthorized access or interception. Encryption ensures that even if attackers manage to capture data, they cannot read or exploit it without the appropriate decryption keys.
  • Access Controls – Applying strict policies to determine who can access specific data and systems based on their role and identity.

Benefits of Zero Trust

  1. Stronger protection against data breaches – Zero Trust models significantly reduce the risk of data breaches by enforcing strict identity verification and limiting access to only necessary resources. Even if an attacker gains entry, micro-segmentation ensures limited movement, containing threats, and minimizing damage.
  2. Enhanced regulatory compliance – Zero Trust helps businesses meet regulatory requirements like GDPR and HIPAA by enforcing strict access controls and continuous monitoring. This approach simplifies compliance and ensures that only authorized users can access sensitive data, reducing the risk of fines.
  3. Improved visibility and control – With continuous monitoring, Zero Trust provides better visibility into network activity, making detecting suspicious behavior in real-time easier. This added control enhances security and operational efficiency, allowing immediate responses to potential threats.
  4. Reduction of insider threats – Zero Trust minimizes insider threats by requiring strict identity verification and limiting access, even for internal users. This makes it harder for malicious insiders or compromised accounts to cause significant damage within the network.
  5. Support for remote work and cloud environments – Zero Trust offers safe access to resources from any location. This flexibility ensures that businesses maintain strong security for both in-office and remote teams.

Conclusion

Zero Trust security models represent a significant shift from traditional perimeter-based defenses to a more dynamic and resilient approach. For business owners, adopting Zero Trust principles can provide peace of mind and enhanced protection in today’s unpredictable cyber landscape. With time, emerging technologies like artificial intelligence, IoT, and cloud computing will continue to shape the evolution of Zero Trust, making it an essential part of a robust cybersecurity strategy.

Pre-Retirement Planning Guide Estate Plan

5 min read

Pre-Retirement Planning Guide - Step 5: Estate PlanStep 5: Estate Plan

The value of an estate plan is twofold. Yes, you want to pass your assets on to heirs in a seamless and tax-efficient manner. But it is also a roadmap to help your heirs understand the full breadth of your assets, where they are located, and how they should be disseminated according to your wishes.

Two important components of your estate plan come into play before you pass away. The first is a Power of Attorney. This document appoints someone you trust – a relative, a friend or a custodial like a bank – to handle your finances on your behalf should you become incapacitated. The second is a Health Care Directive, in which you name someone to make medical decisions for you when you no longer can. To accompany this document, you also may want to complete a living will, generally a boilerplate form that lets medical providers know if you want to forgo life-saving procedures and treatments if you’re in a terminal condition, a coma or near the end of life. Also known as a DNR (do not resuscitate), this document dictates your wishes rather than placing the burden on someone else.

Write a Last Will and Testament

The more complex the estate, the more likely you will need an estate attorney to help you. However, in many cases, an individual can create a will on his own using state-provided forms. The most important thing to remember is that each state has its own requirements regarding wills, such as whether it can be handwritten or even digital and who and how it should be witnessed and possibly notarized. Every time you move to another state throughout your lifetime, you’ll need to update or replace your will to reflect your new home state’s rules.

Your will should name an executor or personal representative in charge of executing the will’s instructions. If you are not married and have minor children, you’ll need to name a guardian for them once you’re deceased. Note that while the age of majority is generally 18, this can vary by state or jurisdiction. Your will should instruct how your assets should be disseminated and to whom, including contingent beneficiaries (should your first choice die before you), and specifically name anyone whom you don’t want to receive proceeds. For example, without a will as a guide, a probate judge may decide that a step-brother should receive your assets instead of your best friend since he is technically a relative.

Be aware that the beneficiary designations on your accounts (e.g., bank, investment, insurance policies) supersede instructions in your will. For example, if you want your second wife to be the sole beneficiary of your assets but forget to change her as the beneficiary on your 401(k) account, your ex will get the payout. That’s the same for all of your accounts with a named beneficiary, so every time you remarry or experience other life-altering events, be sure to review your account beneficiaries and estate plan documents.

Also, make it easy for your executor to find the documents needed to liquidate and/or transfer assets. A simple way to do this is to keep a three-ring binder or file drawer that houses documents/statements for each of your assets, including banking and investment accounts, former and current employer retirement plans, life insurance policies, annuities, real estate property records, etc. If you have a home or property that needs to be sold with proceeds split among your heirs, you should keep records to help establish the property’s cost basis. This includes the sale price and closing expenses from when you purchased the home, as well as the cost of any major repairs or renovations (e.g., new roof, HVAC, additional rooms). When the house is sold, the amount of the sale price minus the cost basis will determine whether or not capital gains need to be paid. Note that taxes on property and investments will need to be paid before assets can be disseminated to your heirs.

Your will is designed to guide a probate judge so that your estate can be settled quickly. However, if you want your heirs to have access to your assets without being subject to probate, consider naming them as joint account owners on your bank and investment accounts as well as the deeds to your properties.

With larger or more complex estates, you might want to consider a trust. Estate planning trusts vary by the type of beneficiary, payout structure, and tax benefit. A trust avoids probate and can help minimize the tax burden on your accumulated assets. Bear in mind that there are dozens of different types of trusts for different circumstances, so it’s important to work with an experienced estate attorney to determine what works best for your situation.

Remember, your estate plan should be a living document that is reviewed and updated every few years to incorporate any new changes in your life, including marriage, children, divorce, and death.

How to Account for Stranded Assets

4 min read

How to Account for Stranded AssetsWith more than 14 million electric vehicle (EV) registrations in 2023 worldwide and 2023 seeing an increase in EV sales over 2022 by 35 percent, manufacturers are probably happy – but not those producing the traditional internal combustion engine (ICE) vehicles. This is according to the International Energy Agency’s Global EV Outlook 2024: Trends in Electric Cars.

This statistic is important because it illustrates how assets can be rendered less useful and potentially turn into stranded assets. A stranded asset, defined, is an asset that’s no longer able to provide its owner the profitable payback they originally expected. The difference is based on shifts, primarily negative, that impact the asset’s expected productive performance.

How & Why Assets Become Stranded

When an asset loses its earning power, normally due to extraneous circumstances, like the invention of a more efficient battery, it can become stranded. For example, a machine that’s exclusively capable of making an internal combustion engine (ICE) vehicle can be considered stranded as the transition to electric vehicles (EV) is made. Since the machine is less valuable because it makes fewer and fewer ICE vehicles, it could be impaired or stranded.

This example illustrates that new technology, especially one that moves forward, can render equipment less useful than previously expected. Other ways assets can be stranded include administrative modifications, evolving societal conventions, etc.

Considerations for Stranded Assets by Testing an Asset for Impairment

The primary way to establish if an asset is stranded is to run an impairment test on it. Stranded assets impact the income statement via a non-cash loss, along with impacting the balance sheet by reducing asset value. Therefore, companies must report a loss on the income statement as it’s completely written off the balance sheet.

Whether it’s through the lens of International Financial Reporting Standards (IFRS) or generally accepted accounting principles (GAAP), whether an asset is intangible or tangible, when its value issue is less than book value or impaired, it must be written down.

GAAP Standard

The first step is to determine the carrying value. This is calculated by subtracting the accumulated depreciation from the asset’s original cost. From there, the asset’s projected undiscounted future cash flows (UFCF) are analyzed against the asset’s carrying value. If the total UFCF is less than the carrying value, an asset is considered impaired.

IFRS Standard

The first step also looks at an asset’s carrying value. From there, if either of the following two values is lower than the carrying value, it’s considered impaired:

  • Present value of future cash flows generated by the asset (the so-called “fair value in use” consideration)
  • Fair value less costs to sell the asset

Financial Statement Considerations

If an asset is impaired or stranded, whatever amount the asset drops by, it lowers the business’ asset’s value on the balance sheet. Looking at the income statement, it’s considered a loss. Additionally, since a devaluation is not considered a cash event, it doesn’t trigger any cash outflows. A real-world example can better illustrate this.

The following assumes a business reports its accounting under GAAP. It could be a company that produces fracking equipment to recover natural gas and crude oil. With the uncertainty of domestic fossil fuel policy, specifically where land can be explored, the threat of OPEC and/or Iran being able to determine their production, and the threat of increased government spending on green energy, fracking equipment has a current carrying value of $10 million. However, with increased competition from the three different factors, the same assets can produce an aggregate of $7.5 million in undiscounted future cash flows.

Based on GAAP, since the carrying value is $2.5 million more than the total undiscounted future cash flows, the business would need to record the same amount for an impairment loss. The journal entries would be:

Loss from Impairment Debit:. $2.5 million

Provision for Impairment Losses Credit:  $2.5 million

Conclusion

When it comes to accounting for stranded assets, it’s important to ensure guidelines are followed based on the type of accounting standards businesses must follow.

How to Measure the Quality of Accounts Receivable

4 min read

How to Measure the Quality of Accounts ReceivableAnalyzing a company’s Accounts Receivables is an effective way to measure its current cash flows and the likelihood of maintaining healthy cash flows. According to the U.S. Chamber of Commerce’s Small Business Index (Third Quarter 2024), 68 percent of small business owners reported being content with their third quarter cash flow performance. This illustrates the importance for small business owners to do everything possible to maintain healthy cash flows, including evaluating the quality of accounts receivables (A/R).

Defining Accounts Receivables

This account or line item on the balance sheet gives the business’ managers/owners and investors a measure on how much money a business expects to receive from selling goods or services. It’s an important metric because it’s a measure of what’s owed, but not yet collected from rendered services/goods.

Consideration for Uncollectable Accounts Receivables

While businesses hope to collect 100 percent of their A/Rs, businesses take a realistic view that not everyone will pay up. For whatever reason, A/Rs aren’t always collected and must be accounted for as uncollectable. Therefore, a contra account is setup to account for accounts receivables that turn into bad debt. This contra account is linked to the accounts receivable, an asset reported on the balance sheet, offsetting the accounts receivable balance. However, there are many metrics for companies to manage their health internally, and some of these metrics are discussed below.

Accounts Receivable-to-Sales Ratio

This is determined by taking a “snapshot” of the ratio or division of the accounts receivables divided by sales over a period of time. The resulting calculation is the percentage of a business’ unpaid sales. The higher the accounts receivable-to-sales ratio, the riskier the company’s financial health. It indicates a business has accounts receivables with a low likelihood of being collected. It’s calculated as follows:

AR to Sales = AR / Sales

Since it measures the mix of how much a business relies on cash versus credit, it can prompt an analyst to determine whether a company is able to operate on minimal cash with low fixed costs and limited outstanding debt. It can also prompt an analyst to determine if a company is subject to cyclical sales and is dependent on the business cycle and whether it’s the right time to invest in a company or hold off until a better entry point is established.

Accounts Receivable Turnover Ratio

This calculation determines how fast a business can convert its accounts receivables into cash. It calculates this over a discrete period, be it a month, quarter, year, etc. It’s calculated as the sales over a period divided by the average accounts receivables balance over the same period. It’s calculated as follows:

ARTR = Net Credit Sales / Average Accounts Receivable

Net Credit Sales = Sales on Credit – Sales Returns – Sales Allowances

Average Accounts Receivable = (Starting + Ending A/R Over a Fixed Time) / 2

The higher the ratio, the less friction businesses have in converting their accounts receivables into cash. One important consideration to keep in mind is that if total sales are used for this calculation, which some business do, the results don’t reflect the original formula because it doesn’t remove the sales on credit or sales allowances.

Days Sales Outstanding (DSO)

This metric reveals how fast (in average number of days) a company is able to turn its receivables into cash. It’s the average accounts receivables divided by net credit sales multiplied by 365. It’s calculated as follows:

DSO = (A/R / net credit sales) x 365 days

The lower the DSO, the better quality and the more efficient a company is in converting its accounts receivables into cash. The higher the DSO, and especially when it goes beyond 90 days, can represent two different financial measures. The first is that the business’ accounts receivables might not be collectable. The second is that the company might be able to make sales but with deteriorating earnings.

While there are many ways to analyze a company’s health, along with many ways to analyze the quality of existing and future accounts receivables, these are a few ways to evaluate a company’s present financial health and prospects for the future.

Sources

https://www.uschamber.com/sbindex/key-findings