djAdvocate
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Post by djAdvocate on Jul 25, 2011 13:51:32 GMT -5
Large and small business alike look at bottom lines...when looking at periodic statements, businesses will look at EBITDA which, yes, does not take into account the tax...however, the net income/loss of a company is ultimately a very valuable number. To maintain a positive profit level, price and fee structures are raised, added, changed, etc. price levels are raised and lowered mostly based on market conditions, not on "net profit" basis. if the market will bear a price increase, the rule of thumb is to continue raising prices until it will no longer bear an increase. none that in this analysis, taxes never come into play. that is because taxes are not part of operating costs.If a company wishes to maintain a certain level of profitablility, and also maintain good cash flows, taxes play a HUGE part of this. not really. cash flows and net profit are unrelated. a company can have insane cashflow and no profit whatsoever. what you are talking about is NET working capital generated through operations. in some industries it is super important. in others, such as the Utilities industry, it is of such minor importance that it is typically ignored.For instance, our company had to make a 1st Qtr and 2nd Qtr estimate payment for over $100k each...you don't think that played a HUGE factor in how we managed other expenses, equipment purchases, fee structures, growth plans, and so on? LOL! if i had $100k per quarter in estimated taxes, i would have no other concerns. i would be so flooded with money that tax evasion would probably be my focus.The company had to manage to have over $100k in cash at the end of each quarter while still satisfying vendor payments, payroll, commissions to our salespeople, etc, and you don't think that plays a factor in business/pricing decisions? ?? wait- you made $100k in estimated taxes and you only had $100k left over? iow, you have a 50% tax rate? what corporate structure do you have?
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djAdvocate
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Post by djAdvocate on Jul 25, 2011 13:54:07 GMT -5
Somebody has to take the pain...the previous generations didn't feel compelled to do so for us, that's for damn sure. In this way we can show them what they should have done and ask why they left it for us to deal with?? Personally, I feel the baby boomers should get hit with as much pain as possible as they seemed to be the greediest, most selfish group to come out of this country so far. But we'll see how the X/Yer's turn out in the coming decades... i think we should all share the pain and get on with it. the problem is that the Democrats seem to think that ONLY the rich should shoulder it, and the Republicans seem to think that ONLY the poor should. i disagree with both sides, obviously.
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reasonfreedom
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Post by reasonfreedom on Jul 25, 2011 13:59:54 GMT -5
Somebody has to take the pain...the previous generations didn't feel compelled to do so for us, that's for damn sure. In this way we can show them what they should have done and ask why they left it for us to deal with?? Personally, I feel the baby boomers should get hit with as much pain as possible as they seemed to be the greediest, most selfish group to come out of this country so far. But we'll see how the X/Yer's turn out in the coming decades... i think we should all share the pain and get on with it. the problem is that the Democrats seem to think that ONLY the rich should shoulder it, and the Republicans seem to think that ONLY the poor should. i disagree with both sides, obviously. I think the politicians should shoulder it .
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djAdvocate
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Post by djAdvocate on Jul 25, 2011 14:10:07 GMT -5
Somebody has to take the pain...the previous generations didn't feel compelled to do so for us, that's for damn sure. In this way we can show them what they should have done and ask why they left it for us to deal with?? Personally, I feel the baby boomers should get hit with as much pain as possible as they seemed to be the greediest, most selfish group to come out of this country so far. But we'll see how the X/Yer's turn out in the coming decades... i think we should all share the pain and get on with it. the problem is that the Democrats seem to think that ONLY the rich should shoulder it, and the Republicans seem to think that ONLY the poor should. i disagree with both sides, obviously. I think the politicians should shoulder it . they will have to, in the general sense. in the specific sense, that is more weight than 535 people can carry.
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jkapp
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Post by jkapp on Jul 25, 2011 14:47:16 GMT -5
Large and small business alike look at bottom lines...when looking at periodic statements, businesses will look at EBITDA which, yes, does not take into account the tax...however, the net income/loss of a company is ultimately a very valuable number. To maintain a positive profit level, price and fee structures are raised, added, changed, etc. price levels are raised and lowered mostly based on market conditions, not on "net profit" basis. if the market will bear a price increase, the rule of thumb is to continue raising prices until it will no longer bear an increase. none that in this analysis, taxes never come into play. that is because taxes are not part of operating costs.If a company wishes to maintain a certain level of profitablility, and also maintain good cash flows, taxes play a HUGE part of this. not really. cash flows and net profit are unrelated. a company can have insane cashflow and no profit whatsoever. what you are talking about is NET working capital generated through operations. in some industries it is super important. in others, such as the Utilities industry, it is of such minor importance that it is typically ignored.For instance, our company had to make a 1st Qtr and 2nd Qtr estimate payment for over $100k each...you don't think that played a HUGE factor in how we managed other expenses, equipment purchases, fee structures, growth plans, and so on? LOL! if i had $100k per quarter in estimated taxes, i would have no other concerns. i would be so flooded with money that tax evasion would probably be my focus.The company had to manage to have over $100k in cash at the end of each quarter while still satisfying vendor payments, payroll, commissions to our salespeople, etc, and you don't think that plays a factor in business/pricing decisions? ?? wait- you made $100k in estimated taxes and you only had $100k left over? iow, you have a 50% tax rate? what corporate structure do you have? What kinds of businesses do you own? You do realize that an estimate payment on taxes does not mean profitability or positive cash flow of any kind? Our cash flows are very tight and here's why: A salesperson makes an order - the product is then orderd from the manufacturer (and many times the manufacturer requires a prepayment/deposit yet we will not always get a deposit from the customer) - the manufacturer ships the product and expects payment before shipping - the customer receives the product, verifies it's ok, and then we bill the customer - the customer pays within 30 days (if we're lucky) So, as you can see, we are paying the vendors at least 30 days before we receive payment from the customer...and if sales are growing, then we may be paying out more money for new orders then is coming in from old invoices. Then the company has to meet payroll, commissions to salespeople, and other operating expenses. So to add another $100k in estimated tax can be a huge deal, especially during periods of sales growth... Right now the execs are looking at fee and price structures because the bottom line is slipping due, in part, to increasing taxes from feds, state, and local governments (mostly local right now, but the state has increased them quite bit the past few years and it's catching up).
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djAdvocate
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Post by djAdvocate on Jul 25, 2011 15:11:22 GMT -5
wait- you made $100k in estimated taxes and you only had $100k left over? iow, you have a 50% tax rate? what corporate structure do you have? What kinds of businesses do you own? two manufacturers, one service business. one of the manufacturers is a sole proprietership.
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djAdvocate
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Post by djAdvocate on Jul 25, 2011 15:16:46 GMT -5
You do realize that an estimate payment on taxes does not mean profitability or positive cash flow of any kind? i do. but i pay no estimated taxes if i am running in the red. do you?Our cash flows are very tight and here's why: A salesperson makes an order - the product is then orderd from the manufacturer (and many times the manufacturer requires a prepayment/deposit yet we will not always get a deposit from the customer) - the manufacturer ships the product and expects payment before shipping - the customer receives the product, verifies it's ok, and then we bill the customer - the customer pays within 30 days (if we're lucky) it sounds as if you are running cash basis. if you were running accrual, none of that stuff would matter in terms of P&L. as a manufacturer, we always offer terms, except for international accounts. you should buy from us. So, as you can see, we are paying the vendors at least 30 days before we receive payment from the customer...and if sales are growing, then we may be paying out more money for new orders then is coming in from old invoices. Then the company has to meet payroll, commissions to salespeople, and other operating expenses. So to add another $100k in estimated tax can be a huge deal, especially during periods of sales growth... estimated taxes are not actually a requirement. but, as you know, if you underestimate, the penalties are .... unpleasant?Right now the execs are looking at fee and price structures because the bottom line is slipping due, in part, to increasing taxes from feds, state, and local governments (mostly local right now, but the state has increased them quite bit the past few years and it's catching up). yeah, i am really not following the last line. but if you don't want to bother explaining it any more, that is fine by me. just write me off as dense. when i try to determine margins, i always work on the gross side, never the net. the reason is that if i am making money, the net part will take care of itself. but i suppose if i were making super high margins, that would matter a lot more than it does.
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jkapp
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Post by jkapp on Jul 25, 2011 15:54:08 GMT -5
You do realize that an estimate payment on taxes does not mean profitability or positive cash flow of any kind? i do. but i pay no estimated taxes if i am running in the red. do you?Our cash flows are very tight and here's why: A salesperson makes an order - the product is then orderd from the manufacturer (and many times the manufacturer requires a prepayment/deposit yet we will not always get a deposit from the customer) - the manufacturer ships the product and expects payment before shipping - the customer receives the product, verifies it's ok, and then we bill the customer - the customer pays within 30 days (if we're lucky) it sounds as if you are running cash basis. if you were running accrual, none of that stuff would matter in terms of P&L. as a manufacturer, we always offer terms, except for international accounts. you should buy from us. So, as you can see, we are paying the vendors at least 30 days before we receive payment from the customer...and if sales are growing, then we may be paying out more money for new orders then is coming in from old invoices. Then the company has to meet payroll, commissions to salespeople, and other operating expenses. So to add another $100k in estimated tax can be a huge deal, especially during periods of sales growth... estimated taxes are not actually a requirement. but, as you know, if you underestimate, the penalties are .... unpleasant?Right now the execs are looking at fee and price structures because the bottom line is slipping due, in part, to increasing taxes from feds, state, and local governments (mostly local right now, but the state has increased them quite bit the past few years and it's catching up). yeah, i am really not following the last line. but if you don't want to bother explaining it any more, that is fine by me. just write me off as dense. when i try to determine margins, i always work on the gross side, never the net. the reason is that if i am making money, the net part will take care of itself. but i suppose if i were making super high margins, that would matter a lot more than it does. No, we're accrual...so the financials show profit (thus the estimate payments), but that does not necessitate positive cash flow (because of the timing issues I have laid out). Our margins are quite low...we can have $100M in sales for the year but our actual gross on that is between 6-7%. Our cash flow has been crap the last few years because we had started investing in a new billing system right before the recession - so we had the costs associated with the new billing system while our sales dropped by over 30%. Our Federal tax liability during those years was not enough to offset the estimate payments we had made right before the recession (that previous year was our best year in sales, we made two estimate payments in 2008 that covered all fed taxes through 2008 and 2009). Ironically, the investment in the billing system was derived to not only improve our service but to also offset increased tax liability, but then our profits tanked due to the economic recession. The states (we deal with about 33 of them) have been increasing taxes all over the place, and that has started hitting our bottom line. We have an investment company that has a majority ownership in our business and while our EBITDA looks ok, our net income (bottom line) is slipping, which they don't like. Our below the line items consist of mainly depreciation and fed/state taxes, and we have noticed a sharp increase in the state tax portion due to many of the state's revenue seeking activity. Normally spreading the sales out over 33 taxing jurisdictions lessens the tax impact, but with so many states looking for increased revenues we have really been getting hit. Thus, why the company is looking at price/fee structure changes to offset this - we don't have the cash flow for any other good tax offsetting plans (such as equipment purchases) and we have already completed the billing system upgrade
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djAdvocate
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Post by djAdvocate on Jul 25, 2011 16:07:17 GMT -5
yeah, i am really not following the last line. but if you don't want to bother explaining it any more, that is fine by me. just write me off as dense. when i try to determine margins, i always work on the gross side, never the net. the reason is that if i am making money, the net part will take care of itself. but i suppose if i were making super high margins, that would matter a lot more than it does. No, we're accrual...so the financials show profit (thus the estimate payments), but that does not necessitate positive cash flow (because of the timing issues I have laid out). Our margins are quite low...we can have $100M in sales for the year but our actual gross on that is between 6-7%. Our cash flow has been crap the last few years because we had started investing in a new billing system right before the recession - so we had the costs associated with the new billing system while our sales dropped by over 30%. Our Federal tax liability during those years was not enough to offset the estimate payments we had made right before the recession (that previous year was our best year in sales, we made two estimate payments in 2008 that covered all fed taxes through 2008 and 2009). Ironically, the investment in the billing system was derived to not only improve our service but to also offset increased tax liability, but then our profits tanked due to the economic recession. The states (we deal with about 33 of them) have been increasing taxes all over the place, and that has started hitting our bottom line. We have an investment company that has a majority ownership in our business and while our EBITDA looks ok, our net income (bottom line) is slipping, which they don't like. Our below the line items consist of mainly depreciation and fed/state taxes, and we have noticed a sharp increase in the state tax portion due to many of the state's revenue seeking activity. Normally spreading the sales out over 33 taxing jurisdictions lessens the tax impact, but with so many states looking for increased revenues we have really been getting hit. Thus, why the company is looking at price/fee structure changes to offset this - we don't have the cash flow for any other good tax offsetting plans (such as equipment purchases) and we have already completed the billing system upgrade yeah. this is a VERY large enterprise, by my standards. are you a "C" corp? publicly traded? and you have some unusual issues (from my standpoint) in that you have a large revenue lag before your expenses hit (mine is less than 7 days). and, i am gathering, you either don't have a large working capital line, or prefer to not use it. i can understand both of those things, actually. i am trying to think what i would do if i were in your shoes, and i think that i would probably try to get a larger working line, and not worry about the lag issues so much. but i know that credit it actually TIGHTENING right now, not loosening, so this is easier said than done. yeah, i don't envy you your cash flow situation.
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djAdvocate
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Post by djAdvocate on Jul 25, 2011 16:11:44 GMT -5
jk- thanks for sticking with me and explaining it, btw. i don't normally find anyone who has any business experience on these boards- or should i say, anyone with any USEFUL business experience.
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jkapp
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Post by jkapp on Jul 25, 2011 16:23:04 GMT -5
jk- thanks for sticking with me and explaining it, btw. i don't normally find anyone who has any business experience on these boards- or should i say, anyone with any USEFUL business experience. No problem...I have the same problem as you do in that regard Yes our company's issue is a unique one...especially considering that since the recession our customers are taking even longer to pay. Our average days to pay (or receive, really) was about 37 days prior to the recession and has spiked to about 48 days (at one point it was 51 days) which really hurt our cash flow for a while. We were almost maxed out on our line of credit at one point. Earlier this year, since the end of year is usually our busiest time, we had a large cash influx as our sales were flat and receivables were getting paid down. We had it paid down to zero by end of April...but it is now back up to 1.5M as business has picked up substantially (which everyone else in the business loves but for accounting it is bittersweet) And we are working on increasing our line since our sales have increased about 15% this year, but banks are tight fisted these days ;D The smartest move our CFO made was to keep our line of credit pretty much 80% in use during the height of the economic turmoil so the bank was not tempted to lower it
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djAdvocate
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Post by djAdvocate on Jul 25, 2011 16:27:43 GMT -5
jk- thanks for sticking with me and explaining it, btw. i don't normally find anyone who has any business experience on these boards- or should i say, anyone with any USEFUL business experience. No problem...I have the same problem as you do in that regard Yes our company's issue is a unique one...especially considering that since the recession our customers are taking even longer to pay. Our average days to pay (or receive, really) was about 37 days prior to the recession and has spiked to about 48 days (at one point it was 51 days) which really hurt our cash flow for a while. We were almost maxed out on our line of credit at one point. Earlier this year, since the end of year is usually our busiest time, we had a large cash influx as our sales were flat and receivables were getting paid down. We had it paid down to zero by end of April...but it is now back up to 1.5M as business has picked up substantially (which everyone else in the business loves but for accounting it is bittersweet) And we are working on increasing our line since our sales have increased about 15% this year, but banks are tight fisted these days ;D The smartest move our CFO made was to keep our line of credit pretty much 80% in use during the height of the economic turmoil so the bank was not tempted to lower it we had a record year last year. at one point, we had our $150k line paid down and $150k in the bank. but then we went out and bought a building, and that flipped upside down. we now have a beautiful new building, and our LOC is totally tapped. but yes, our customer paydex is only down by 2, from 45 to 47, so i don't have any problems in that department. what worries me the most right now is the lack of good contacts for new work. we shall see how it goes. hopefully we will get a little blip when this retarded debt thing gets resolved.
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jkapp
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Post by jkapp on Jul 25, 2011 16:39:40 GMT -5
No problem...I have the same problem as you do in that regard Yes our company's issue is a unique one...especially considering that since the recession our customers are taking even longer to pay. Our average days to pay (or receive, really) was about 37 days prior to the recession and has spiked to about 48 days (at one point it was 51 days) which really hurt our cash flow for a while. We were almost maxed out on our line of credit at one point. Earlier this year, since the end of year is usually our busiest time, we had a large cash influx as our sales were flat and receivables were getting paid down. We had it paid down to zero by end of April...but it is now back up to 1.5M as business has picked up substantially (which everyone else in the business loves but for accounting it is bittersweet) And we are working on increasing our line since our sales have increased about 15% this year, but banks are tight fisted these days ;D The smartest move our CFO made was to keep our line of credit pretty much 80% in use during the height of the economic turmoil so the bank was not tempted to lower it we had a record year last year. at one point, we had our $150k line paid down and $150k in the bank. but then we went out and bought a building, and that flipped upside down. we now have a beautiful new building, and our LOC is totally tapped. but yes, our customer paydex is only down by 2, from 45 to 47, so i don't have any problems in that department. what worries me the most right now is the lack of good contacts for new work. we shall see how it goes. hopefully we will get a little blip when this retarded debt thing gets resolved. See now I'm jealous, I wish our company had bought a new building instead of created a new billing system...we are getting cramped in our building and the air quality is crap Our problem right now isn't few work orders, but that we are having delays in getting customers to finalize their orders and get the PO's sent out to the manufacturers...I'm not sure where the delays are coming from but they started around the time of the Fed debt issues...maybe just coincidence but you never know??
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djAdvocate
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Post by djAdvocate on Jul 25, 2011 17:56:29 GMT -5
we had a record year last year. at one point, we had our $150k line paid down and $150k in the bank. but then we went out and bought a building, and that flipped upside down. we now have a beautiful new building, and our LOC is totally tapped. but yes, our customer paydex is only down by 2, from 45 to 47, so i don't have any problems in that department. what worries me the most right now is the lack of good contacts for new work. we shall see how it goes. hopefully we will get a little blip when this retarded debt thing gets resolved. See now I'm jealous, I wish our company had bought a new building instead of created a new billing system...we are getting cramped in our building and the air quality is crap Our problem right now isn't few work orders, but that we are having delays in getting customers to finalize their orders and get the PO's sent out to the manufacturers...I'm not sure where the delays are coming from but they started around the time of the Fed debt issues...maybe just coincidence but you never know?? no, i think it is more than a coincidence. i think that there are borrowing issues at play here. if this deal melts down, we are going to see a spike in interest rates, and that will make borrowing tougher. that in turn will mean that people are less likely to make forward risks, and that in turn may just capsize the barely afloat recovery we have. that would be a real shame.
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Post by BeenThere...DoneThat... on Jul 25, 2011 18:29:57 GMT -5
>>> if this deal melts down, <<< ...POTUS has already shot down a proposed deal that raises the ceiling by $1T... correct?
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humok
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Post by humok on Jul 25, 2011 18:35:52 GMT -5
to the opening post...where have you been to come up with a fractional number to the financial institution bailout? 200 billion is not even close and it was all a scam on the people of this country.
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humok
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Post by humok on Jul 25, 2011 18:37:45 GMT -5
dj...interest rates are soon to go up....don't kid yourself on that....the only way the fed knows to fight inflation that may soon get ramping up....
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