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Financial: Insurance Checkup

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Financial

Insurance Checkup
 Business insurance is one large fixed cost for any dealer. But periodic reviews of your insurance needs and status can help reign in some of those costs. Insurance is designed to protect you and your business from unexpected disaster, but careful consideration of real costs vs. anticipated costs can help you save money and prevent headaches.

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  • Check your deductible levels: Higher deductibles do save money on insurance premiums, but they are double-edged swords. For certain situations it may make sense to take a lower premium so that you can move more quickly to resolve any problems.
  • If you haven’t done so in a while, get your agent to thoroughly review all your insurance policies to see what needs to be updated, upgraded or eliminated. Focus on what is most important to keep you in business, not on overbuying insurance. And have them look at any new insurance products that could supplement/replace those you have.
  • When your policy periods end, get quotes from several agents who represent different insurance brands. Keep your options and negotiating room open. Get all quotes in writing, and get all quotes against the exact same coverage parameters, including deductible levels. Once you decide on a carrier, then you can work out specific details for your particular needs.
  • Don’t accept rate increases at face value. If you’re a long-time customer who has filed few claims over the years, you may be able to leverage that and get a rollback.
  • Pay insurance premiums on time. Many types of insurance don’t provide coverage beyond the premium due date. If you receive a cancellation notice, call your agent immediately and get the matter cleared up. And get written confirmation that any canceled policies have been reinstated.
  • Good agents will make insurance less confusing, make sure you understand the risks you face in your business, recommend coverage to protect you against those risks, and update you on changes in laws and new developments in coverage. If your agent doesn’t do these things, maybe it’s time to find one who does.
  • If you make any changes in your business – from adding or changing a company-owned vehicle to adding a new location – make sure to inform your insurance agent.

Stay Personally Prepared
Don’t get so busy at work that you neglect your personal business affairs. Medical problems or worse can leave your loved ones in dire straits. As can personal issues like divorce.

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  • If you don’t have a will, get one done, including any estate planning provisions as needed. If you desire, put a Living Will on record, as well.
  • Have a clear succession plan for your business. And make sure those you designate to take over should you be incapacitated or die are well trained to handle the business.
  • Check and update your insurance coverage and beneficiaries.
  • Determine your net worth, and prepare a complete accounting of assets and liabilities. And keep it updated.
  • Video tape the contents of your home and business for insurance purposes. Create a written list of all contents, including product identification, model and serial numbers, and any receipts you may have.
  • Evaluate all investments from tax perspectives, and consider any estate tax liabilities your investments may have.
  • Find a good financial planner or tax accountant who can provide the insight needed to guide you through these and many issues.
  • Find a secure place for important personal documents. At least one working set of copies should be kept in an accessible location. Another set of copies should be kept by your attorney or a family member. Each page of all personal documents should be numbered and dated to avoid possible confusion.

Surviving IRS Audits
An audit notice from the IRS should not induce panic. Most simply require providing additional information, and few result in serious problems.

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If the letter specifies a correspondence audit – the least invasive and usually limited in scope – all you need to do is send copies of supporting materials requested.

Office audits (at the local IRS office) or field audits (at your place of business) are less common, but cover more issues and usually require a more detailed review.

If you’ve kept good records to substantiate your income, deductions and credits, it should be simple to assemble necessary supporting documentation. If you haven’t, you could face trouble.

Here are some basics that apply to office or field audits:

  • Review the tax return in question – and supporting documentation – before the meeting. Anticipate questions or requests for more information. If your supporting evidence is weak, have additional documentation available – but don’t volunteer supplemental information unless the IRS raises a question.
  • Make two or more copies of all information requested – one for you and one for the IRS. Unless otherwise requested, keep your original documents in your files.
  • Focus only on the audit questions raised, and never comment on issues not identified by the IRS.
  • If your accountant, attorney or tax agent prepared your return, make sure they’re present at the audit meeting. If your return includes complicated issues or deductions, their explanations will be required.
  • Don’t miss the meeting. Arrive early, and try to be relaxed before you enter the meeting. Be cooperative during the meeting, and remember that yours is one of dozens of audits the IRS agent is conducting. A speedy resolution will please the IRS agent as much as you.
Cash Flow StatementsCash flow statements, which project cash inflows and outflows over a specific time period, are a vital alert as to when cash shortfalls may be on the horizon. Creating an accurate cash flow statement should be a priority. There are five basic segments to any solid cash flow statement:
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  • Beginning Cash Balance – Your available cash at the start of the time period you’re considering
  • Projected Cash Sources – All accounts receivable, investment income, royalties, rents and any other regular business income sources
  • Projected Cash Uses – All costs of business, including salaries, benefits, purchases, cost of goods, utilities, rents, loan payments, taxes and all other regular business expenses.
  • Projected Net Change – The difference – positive or negative – between Cash Sources and Cash Uses
  • Ending Cash Balance – Obtained by adding Net Change to Beginning Cash Balance. This, in turn, is the Beginning Cash Balance for the next measurement period.

Most cash flow statement inaccuracies occur in the Projected Cash Sources segment, often because of slow paying customers and/or unexpected sales ups and downs. Keep in mind that projection statements – like cash flow statements – can never be 100% accurate.

Interest on Reserves

Every business should set aside adequate cash reserves to meet future obligations. Sudden business downturns, after all, don’t excuse bills or wages, and unexpected expenditures can come at any time. But your cash reserves should earn money, not just sit collecting dust. There are, however, some considerations.

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  • Most checking accounts don’t earn interest, and those that do return a very low rate. So unless you negotiate a higher interest rate with your bank, it’s not a good idea to keep reserves in your checking account.
  • While you can get a higher interest rate in savings accounts, you can’t write checks against savings. If you don’t mind having to transfer funds, this isn’t a bad way to go.
  • Money market funds earn about the same rate of interest as savings accounts – sometimes more – and you can write checks against them. But a minimum balance is often required, and you may be limited in how many checks you can write each month. If you have significant funds in a money market account, your bank may be more flexible. Special commercial money market funds are also available, but these generally pay less interest than standard ones. Some national money markets pay higher interest than your local bank.
  • Internet banks may offer higher rates on money markets, but they tend to require a high minimum balance to maintain the account. But, it’s harder to make deposits and withdrawals using Internet banks. Some have linked with ATMs for quick cash withdrawals, and some may allow Internet transfers to and from your local bank.
  • Online brokerages pay higher money market rates than local banks, and allow Internet transfers to and from local bank accounts. Even with the added flexibility, online brokerages often require a two-day transfer waiting period. And while these allow immediate transfer of funds to stock and bond funds or to individual stocks, this adds risk to storing cash reserves.
  • Certificates of deposit (CDs) are available through most banks (national banks usually offer higher interest), and almost always offer higher rates of interest than savings or money market accounts. But CDs reduce flexibility because funds must be in the account for a specified time period – usually from one month to several years – and there are stiff penalties on early withdrawals. And make sure that any CD interest rate you consider is the actual interest, not “yearly yield.”
  • Riskier ways to handle cash reserves include stock or bond funds, real estate investment funds, and commodity funds. These can drop in value at any time, leaving you with less money than you started with.

Keep in mind that any interest earned from any business account is considered business income, and is subject to federal and state tax. Interest is usually considered as regular earned income, as are gains from the sale of stocks or stock funds held less than one year. Gains from the sale of stocks and stock mutual funds that are held longer than one year may be considered as capital gains, and could be subject to lower tax rates.

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Check www.money-rates.com for the best national money market and CD rates.

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