Tuesday, August 30, 2016

What You Need to Know About Entity Classification Election

Business entities may elect to be treated as corporations taxed at the entity and member levels or as "flow through" entities taxed only at the member level. However, entities organized as corporations under U.S. state laws and certain foreign entities are treated as corporations, with no optional election.

Corporate tax is imposed in the United States at the federal, most state, and some local levels on the income of entities treated for tax purposes as corporations. Federal tax rates on corporate taxable income vary from 15% to 39%. State and local taxes and rules vary by jurisdiction, though many are based on federal concepts and definitions. Taxable income may differ from book income both as to timing of income and tax deductions and as to what is taxable.

There is an entity in charge of regulating the inflow of resources through tax collection in the country: The Internal Revenue Service. The Internal Revenue Service is the revenue service of the United States federal government. Is important to know that the government agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue.

The Internal Revenue Service s responsible for collecting taxes and the administration of the Internal Revenue Code. It has also overseen various benefit programs, and enforces portions of the Affordable Care Act.

Is also important to remember that some entities treated as corporations may make other elections that enable corporate income to be taxed only at the shareholder level, and not at the corporate level. Such entities are treated similarly to partnerships. The income of the entity is not taxed at the corporate level, and the members must pay tax on their share of the entity's income.

An entity which is eligible to make an election is referred to as an eligible entity. Generally, a corporation organized under the United States federal or state statute, and referred to as a corporation, body corporate or body politic by that statute, is not an eligible entity.

Reform business entity classification rules for foreign entities: Under the proposal, a foreign eligible entity may be treated as a disregarded entity only if the single owner of the foreign eligible entity is created or organized in, or under the law of, the foreign country in, or under the law of, which the foreign eligible entity is created or organized.

Therefore, a foreign eligible entity with a single owner that is organized or created in a country other than that of its single owner would be treated as a corporation for federal tax purposes. Except in cases of the United States of America tax avoidance, the proposal would generally not apply to a first-tier foreign eligible entity wholly owned by a United States person. The tax treatment of the conversion to a corporation of a foreign eligible entity treated as a disregarded entity would be consistent with current Treasury regulations and relevant tax principles.

For the record, a business entity is an entity that is formed and administered as per commercial law in order to engage in business activities, charitable work, or other activities allowable. Most often, business entities are formed to sell a product or a service. There are many types of business entities defined in the legal systems of various countries. These include corporations, cooperatives, partnerships, sole traders, limited liability company and other specifically permitted and labelled types of entities.

The following types of business entity are treated as eligible entities:
     An eligible entity that previously elected to be an association taxable as a corporation.
     A foreign eligible entity that became an association taxable as a corporation under the foreign default rule.
     A foreign corporation that is not identified as a corporation under Treasury regulations.

A quick glance at history

Long before 1996 entities both domestic and foreign were classified as corporations or not based on the called "multi-factor test", which looked at limited liability; continuity of life; free transferability of interests; centralized management; associates; objective to carry on business for joint profit.

The initial regulations also included a list of foreign entities which would always be classified as corporations and which could not elect to be disregarded.

The first federal income tax was enacted in 1861 and expired in 1872, amid constitutional challenges. A corporate income tax was enacted in 1894, but a key aspect of it was shortly held unconstitutional. In 1909, Congress enacted an excise tax on corporations based on income. After ratification of the Sixteenth amendment to the United States of America Constitution, this became the corporate provisions of the federal income tax. Amendments to various provisions affecting corporations have been in most or all revenue acts since. Corporate tax provisions are incorporated in Title 26 of the United States Code, known as the Internal Revenue Code. The present rate of tax on corporate income was adopted in the Tax Reform Act of 1986.

Take a look to this article to learn how to reduce your personal and business taxes.

Tuesday, August 23, 2016

3 Main Categories of Cash Flow Statements You Need to Know

As an expert in financial statements, Adam Greene knows that cash flow is one of the most important concepts business owners should understand. It gives a real picture of how a company’s finances are doing and gives pertinent insight into the health of any entity. In order to understand your business’ cash flow statement, you need to keep in mind the three main categories that compose it: cash from operating activities, cash from investing activities and cash from financing activities. Each type of cash flow metrics will let you do a cash flow analysis that in the end will allow you to foresee and compare investment opportunities.

What is Cash Flow Analysis and why is it important?

Image courtesy 401(K) 2012 | Flickr
Cash flow analysis is the inspection of an entity’s cash inflows (cash that was produced by the company) and outflows (cash that was dispersed by the company). A business’ cash flow statement provides a bond between the income statement and the balance sheet, allowing analysts to define where the company’s cash was indeed produced and dispersed during a specific period of time -usually a year.

Companies need to know their cash flow calculations because it provides significant financial information on profitability, quality of earnings, liquidity, risks, capital requirements, future growth, dividends, among other financial concepts. Cash flow statement analysis is a valuable tool that helps companies to oversee investment opportunities. Cash flow metrics can be extremely important for analysis with enterprise value, or various other measurements.

Analysts must check the statement of cash flow reports to understand the impact of a firm's operating, investing and financial activities on cash flow over an accounting period. Usually, cash flow statements show information related to the aspects listed below:

     How the company obtains and spends cash.
     Why there may be differences between net income and cash flows.
     If the company generates enough cash from operation to sustain the business and pay off existing debts as they mature
     If the company has enough cash to take advantage of new investment opportunities

What composes a Cash Flow statement?

As it was mentioned before, a regular cash flow statement is segregated into three sections: Operating activities, investing activities and financing activities.

1.       Cash Flow From Operations (CFO)

Cash Flow from Operations measures the cash generated from the core business or operations of the business. These operating activities include any receipt from sales, interest, income tax and vendor payments; salary and wage payments to employees, rent payments or any other type of operating expenses should be included in this category. If you company has a trading portfolio the CFO report should include receipts from the sale of loans, debt or equity instruments.

A CFO report generally includes:
-      Inflows: Revenue from the sale of goods and services, interest from debt instruments of other entities and dividends from equities of other entities.
-        Outflows: Payments to suppliers, employees, government, lenders and other expenses.

2. Cash Flow from Investing Activities (CFI)

Image courtesy negocios rentables | Flickr
Cash flow from investing activities will be negative most times. For most companies, it represents an investment in itself since it includes any sources and uses of cash from a company's investments, such as a purchase or sale of an asset, loans made to vendors or received from customers or any payments related to a merger or acquisition.

The CFI statement accounts the purchases and sales of long-term investments -including things such as capital expenditures, acquisitions, or investments in other securities such as stock and bonds.

A CFI report usually includes:
-       Inflows: Sale of property, plant, equipment, debt or equity securities and collection of principal on loans to other entities.
-   Outflow: Purchase of property, plant, equipment and debt or equity securities and lending money to other entities.

3. Cash Flow from Financing Activities (CFF)

Cash flow from Financing is in charge of measuring the activities that fund the company and stakeholders (debt and equity holders). These activities include the sources of cash from investors or banks, as well as the uses of cash paid to shareholders, also, issuing or buying back stock, issuing or repurchasing debt, and paying dividends to shareholders.

A CFI report generally includes:
-          Inflows: Sale of equity securities and issuance of debt securities.
-          Outflows: Dividends to shareholders, redemption of long-term debt and capital stock.

The sum of the three makes up the Total Cash Flow for the entity, which is the number analysts find at the bottom of the Cash Flow Statement and use to understand how an entity’s cash balance is doing at the beginning and ending of the time period and whether or not a company is ready to make an investment.

If you want to read more about the main categories that compose a cash flow statement, you can click here.

Tuesday, August 16, 2016

5 Ways to Improve Your Company's Cash Flow

It does not matter how big your business is and how profitable it has become. If you are running a company, there are some things that you must worry about in order to be successful, one of them is your cash flow.

Image courtesy Ken Teegardin | Flickr
Cash flow is defined as the net amount of cash and cash-equivalents moving into and out of a company. It is the difference in amount of cash available at the beginning of a period (opening balance) and the amount at the end of that period (closing balance). We say it is positive when the closing balance is higher than the opening balance. Having a positive cash flow signifies that a company's liquid assets are growing, therefore, the company can be able to pay its debts, reinvest in its business, return money to shareholders, pay expenses and plan ahead against possible financial difficulties. Every company is always trying to keep a positive cash flow since it is used to assess the quality of its income. Positive cash flow indicates whether the company is positioned to remain solvent or not.

In terms of success, most companies’ dream is to have a regular cash flow. The right way to do it is by collecting receivables as fast as possible and slowing down payables without jeopardizing the relationship with suppliers. Nobody wants to deal with a situation where payables (debts) are due before the receivables (money that hasn’t been collected yet) come in.

There are many ways to handle cash flow issues. One could be extending your accounts payable period by using a credit card to pay suppliers. If you pay with a credit card, your supplier gets immediately paid and you get a few more weeks to pay the card down. However, this alternative can be also a problem since you probably don't want to deal with interest charges.

As the credit card alternative often is not the most useful one, in this article Adam Greene will share a few tips on how your company can improve its cash flow effectively.

1. Be well prepared for the future:

Putting together a 12-month forecast for your company’s cash flow is definitely the best way to go. You need to be prepared for the costs associated with your business operation, and mapping things out week a week will help you see where to expect changes in expenses ahead of your big sales season and where several payments might come due all at once.

Sometimes small companies are not prepared for all the costs associated with growing quickly –more employers, a bigger inventory and more debts. By using pen and paper to plan what is going to happen with their cash flow, they can prevent a financial disaster.

2. Balance your terms:

You may want to evaluate your paying terms in order to keep a positive cash flow. This means that your average payable should always exceed your average receivable.

Having a balanced customer and supplier terms is always a good way to structure your business. In order for your company to achieve this, you should check the terms you're offering to customers and evaluate if they work for you and how your customers are performing to those terms.

3. Be disciplined:

Image courtesy OTA Photos | Flickr
You should reduce your receivable period after selling a product or service to your customers. A way for you to make this task easier is by keeping track of your activities and documenting that information. Using a software to help you remember when to collect your receivables can be quite helpful.

This discipline should also be reflected on your payables operations. By settling all your debts with suppliers on time, you are ensuring a healthy business relationship that is likely to give you the chance to negotiate for future discounts or payment terms better suited to your business cycle.

4. Beware of your inventory:

Check which products tend to be more prone to be sold and try to keep a small inventory of the products that you only sell sporadically. Having money invested in an inventory that is never going to be sold, is a waste of resources that could be better used in items that can return your investment more quickly. In other words, try to avoid having tons of money tied to an inventory.

5. Identify which customers help you with your cash flow:

Not because a customer is a regular or an old one, it means is going to have a positive impact on your cash flow.

Evaluate your customers and identify which ones are the worst payers. For these type of customers, you may want to plan a strategy in order to better approach them and improve the paying terms. Sometimes small accounts are more profitable than big accounts with horrible terms.

If you currently run a small company and still don’t know how to have a better cash flow, you can click here and find more information.

Tuesday, August 9, 2016

The Most Controversial Over 62 Billion Possible Merger

For thousands of years, farmers have been breeding, saving, replanting, and freely exchanging seeds. In the past century, breeders developed new crop varieties for farmers around the world, resulting in plants adapted to various cuisines, geographical regions, soil types and weather conditions. However over the last few decades, just five companies have acquired the majority of the world's seed supply: Monsanto, DuPont, Syngenta, Dow and Bayer. In the 1980s, appeared the first patents on seeds that dramatically increase use of pesticides the companies also sell, and declining choice of seed varieties. Patents ensure higher profits from higher seed prices by allowing the companies to outlaw thousands of farmers that sued for seed-saving.

Controversial consequences of the merger

Image courtesy Medical Marijuana News | Flickr
Now, two of the world’s largest pesticide-seed companies may merge into a still bigger entity. The union of Monsanto’s seeds and Bayer’s herbicides would perfectly position the merged giant to fully exploit a highly profitable cycle of increasing herbicide use and weed resistance. Unfortunately, toxic pesticides, pollinator decline and the illegalization of seed-saving are all prominent features of agriculture in America today, thanks to enormous global corporations that have gained control of the world’s seeds. Bayer offered $62 billion to acquire Monsanto, and while Monsanto rejected this offer, it remains open to a better one. If all go through, the deal would create a global giant in agriculture technology touching much of global food production through the development of seeds and pesticides.

The consolidation of two big industry players may also limit farmer choice and bargaining power, with increasing seed prices expected to be passed on to the grocery aisles. There’s already a deep and widely held public suspicion of Monsanto, which has been so battered by controversy that it dedicates a section of its website to allegations that its genetically engineered seeds are harmful, that the company is malicious in its dealings with farmers and more. Genetic engineering is often the target of health concerns, but the real danger is how it impedes biodiversity. That concern also translates to weather variations, a factor that has become even more unpredictable with climate change. Seeds are sold with a combination of traits, including being more disease-resistant, productive and so on. These traits prevent farmers from customizing to their specific geographies and other particularized concerns and forces them to pay for traits they don’t require. And obviously, higher seed prices translate into higher consumer prices.

Monsanto wants farmers to pay a royalty to plant any seed that descended from a patented original. The big seed companies use a strategy to attack seed savers that consists of three stages: investigations, coerced settlements, and litigation. Just in the U.S., Monsanto has sued hundreds of farmers and small farms businesses for alleged seed patent violation.

Opposing groups united against Monsanto

Image courtesy Camila Araya | Flickr

Last week, dozens of environmental activist groups, farmers, and sustainable food organizations joined forces at the COP21 Paris to announce that Monsanto will face international tribunal over crimes against humanity and the environment. It is set to take place in October of 2016, on World Food Day. The effort already seems to be receiving resistance from corporate media. The announcement took place at the climate summit, because they think that Monsanto is a major contributor to anthropogenic greenhouse gas emissions, the depletion of soil and water resources, declining biodiversity, species extinction, and the displacement of millions of small farmers worldwide. “The Tribunal will rely on the ‘Guiding Principles on Business and Human Rights’ adopted at the UN in 2011. It will also assess potential criminal liability on the basis of the Rome Statute that created the International Criminal Court in The Hague in 2002, and it will consider whether a reform of international criminal law is warranted to include crimes against the environment, or ecocide, as a prosecutable criminal offense, so that natural persons could incur criminal liability.”

Another bidder for the merger

Adam Greene CPA knew that Bayer could face a rival for the $62B Monsanto takeover in Hugh Grant, chairman and CEO of the St. Louis-based seed and Pesticide Company. Mr. Grant said in a Wednesday statement he's held recent talks with representatives of both Bayer and "others regarding alternative strategic options." The possibility of a new contender against Bayer came as Monsanto reported a $717 million third-quarter profit, or $1.63 a share. Both financial measures fell below Wall Street forecasts. Despite the downbeat financial news, Grant's statement about the takeover talks sent Monsanto shares closed 2.4% higher at $103.52 Wednesday. Bayer, whose shares closed virtually unchanged, declined to discuss the comments.

The European Union announced plans for a close review of the potential Bayer-Monsanto deal to create the world's largest seed and pesticide business. For now, two European Parliament members from Germany oppose the deal. The review would likely examine the transaction's potential impact on prices, the diversity of available seed products as well as research. It must strictly and impartially apply European merger control rules. Also, European Parliament member Martin Häusling has warned that a Bayer takeover of Monsanto would leave the European Union's vegetable seed market in the hands of just four companies. 

Tuesday, August 2, 2016

Quick Tips to Empower Your Startup

As a start-up business your financial planning is crucial, Adam Greene is a professional who  can provide you with the best financial advice for your business, he is responsible of handling the company’s tax information, maintaining relationships with clients, and presiding over all financial statements for the company where he works: Greene & Company LLP.

Image courtesy Pexels.com

Entrepreneurs are full of great ideas and powerful ways to implement them, but like anything in life, starting a new business requires a hefty stack of cold, hard cash. At one time, gathering this cash required hours of traipsing business plans to one investor after another, hoping one would be interested enough to invest. This approach often took years and yielded disappointing results. That’s why financial planning is fundamental.

One of the worst elements to overlook is the finances of the business. This happens all too often when entrepreneurs get too far ahead of themselves and overconfident in the success of their service or product. Unfortunately, money-related matters spell the downfall of nearly every startup that fails.

Remember that a financial plan contains a prospective financial statements which are similar, but different, than a budget. Financial plans are the financial accounting overview of a company. Another important aspect at the moment of planning the finances of a Startup is having to pay taxes. Read this article to learn more about the history of taxes in US history and learn why are so important for your business.

But there is no reason to be afraid, many people have lived the experience of starting a business and there is a growing amount of information on opening a Startup and not die trying. Here is a compilation of good tips for beginners in the Startups business:

office employee
Image courtesy Pexels.com

1.    Keep it simple: First of all, there is no need to panic. There are numerous applications to keep a strict count of finance. In this case, the most important thing is to have clear goals, not going through economic hardship and know that with a good effort, the success of your Startup is getting closer.

2.    Get help: Having detailed conversations with your bookkeeper, accountant, or chief financial officer about these things will help you stay on top of your company’s cash flow and learn even more about what you can do and what are those investments that you should not do yet. You don’t want to have to answer to investors that you don’t know or understand your revenues or expenses.

3.   Make a constant check: Don’t get lazy at doing your financial planning, every month isn’t enough. Try to check nearly every week, it would be much better if you can do it or more than just once a week. And learn to do your financial checking in on both my personal and business finances, remember cashflow is the key to success.

4.   Use some tools: Calculate the cash flow of your Startup with excel, and if you can, buy an accounting software; it will make your life much easier. Make a schedule of activities with your finances, for example, every month, go through and calculate your cash flow in Excel to see the sources of cash bleed, and then try to cut them out. It’s also helpful to try and project cash flows for the rest of the year to make sure any anticipated negative cash flow can be funded properly.

5.   Be prepared: As it is explained on the fourth point, a schedule of activities makes easier to project and prepare for the most difficult situations in economic terms, not just for you but also for your business. If is possible, set aside some money from your business profits for emergencies. The business world is really unpredictable, and you should have some savings just in case.

Complete financial plans contain all periods and transaction types. It is a combination of the financial statements which independently only reflect a past, present, or future state of the company.

Another aspect to consider in the exercise of enhancing the Startup is seeking resources for investment in other entities, individuals and potential partners. But for an entrepreneur starting out, it can be hard to sort through the many funding options available to determine which are most lucrative. In this case, the best way to make itself more attractive for investment, in addition to an optimal financial plan, you must work on the following points and make a difference on the market:

        Invest in having an excellent human capital in your team
     As the boss, become an expert at solving problems, become on someone willing to do any kind of work
        Keep in mind always that every company will need more money than is expected.

You are a businessman, you are an adventurer because starting a business is not easy at all, just keep in mind that you need to be prepared for hard times. Keep your steady goals in mind and work towards them no matter what, but have a plan in place just in case those goals don’t go out as expected.