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Refocus on basic financial literacy

A few months ago the Wall Street Journal wrote “Women are falling far behind men in financial literacy. The even worse news: Men apparently don’t know much about the topic in the first place.” the article went on to explain that the underlying test was a measure of the most basic understanding of concepts that can make a difference in an individual’s financial decision making and ultimate results. It occurs to me that most of the financial service industry focuses on much more complicated topics. We are missing the most basic and most important opportunities to help our clients.

This tells me that I should focus my attention on more basic publishing topics like “10 Simple Rules for Financial Survival” and fewer like “Tax planning for small business excise tax penalties under IRC 4980D

Mutual life insurance companies are still the best

The topic of whether consumers are affected by the choice of a mutual life insurance company vs. a stock life insurance company has been a touchy issue for almost two decades. A number of high profile life insurance companies have demutualized since the year 2000 with great results. Today there are less than 100 mutual life insurance companies and a small handful of these gather most attention and market share.

I realize there are strong arguments on both sides and undoubtedly will be strong opposition to any opinion I may express. There seems to be little practical value in exploring the details of these distinctions; the major difference may well turn out to be in the marketing.

Yet in my opinion, with all other things being equal, there is still good reason to prefer a mutually owned life insurance company over a stock life insurance company. Specifically, I see no reason why a consumer  would not wish to consider one of the top tier mutual life insurance companies as their first choice when selecting permanent life insurance policy for personal or business purposes. Those companies in the top tier may include Northwestern Mutual, Massachusetts Mutual, New York Life, Pacific Life, Penn Mutual, Guardian Life, Minnesota Life, Ohio National Life, National Life of Vermont, Union Central Life, Acacia life, and Ameritas Life.

I’ve had the opportunity to work with most of these companies over three decades and have had only positive client experiences. In fact, I don’t know a single 50+ year old policy owner who is not pleased with the decision to take a policy with a mutual life insurance company when they were younger. My own decision to take out a small whole life insurance policy more than 30 years ago turns out to be one of the most successful financial moves I have ever made.

New report on Sandy devastation to NJ fishing-related businesses

A new report published this month by the National Oceanic and Atmospheric Administration (NOAA), The U.S. Chamber of Commerce and the National Marine Fisheries Service shows the devastating impact of Sandy on New Jersey’s fishing-related businesses.

I’ve been speaking and writing about the accounting aspects of this topic for almost three years now based on feedback from my fishing industry contacts and clients so it is good to see some third party verification of the trend.

Some highlights of the report:
– New Jersey fishing-related businesses suffered nearly $300 million in estimated damages and lost earnings
– Bait shops and marinas had, on average, one fewer employee after Sandy.
– Commercial fishing boat crews were cut in half.
– Some fishermen and business owners will never return to their previous occupations while many others are still picking up the pieces.

Our businesses in Money Island NJ are certainly still reeling from the impact. We are on par with others in the region struggling to survive on about 40% paid occupancy and probably less than 25% pre-storm foot traffic.

Still, in this most difficult economic environment, the New Jersey Department of Environmental Protection stepped up measures to increase enforcement of waterfront development tidelands lease issues that pre-dated Sandy by decades. In the spring of 2013, at the height of the Sandy crisis, the NJDEP issued liens against most of our properties at Money Island NJ.

Likewise, the Cumberland County Department of Health issued notices of violation against us for septic systems that, according to locally conducted tests and long term state water tests, have never been a problem.

The NJ Department of Community Affairs assessed over $1,100 in late fees for fire safety inspections while the seasonal business was closed for Sandy repairs!

The local building office denied all permits for post-Sandy citing a pre-existing zoning issue and issued a $2,000 fine  for repairs made without a permit.

In 2014 Downe Township sent a letter that it intends to foreclose on the tax lien it holds on our properties and in the meanwhile continues to accrue interest at a rate of 18%.

Our businesses in Money Island NJ are certainly still reeling from the impact. We are on par with others in the region struggling to survive on about 40% paid occupancy and probably less than 25% pre-storm foot traffic. While Sandy was the devastating trigger of this economic stress, it appears that government and not nature are delivering the most hurtful blows.

Tips for small business dealing with the new credit card rules

On October 1 2015 an important change occurs that tips the balance or risk in the payment system that places  almost all small business owners at greater financial risk. There are three simple steps that small businesses can take to protect themselves and reduce this new payment risk.

In the past credit card companies were responsible for the risks associated with stolen or forfeited cards. On October 1, 2015 it becomes the seller’s problem if you are still using the same payment processing system and technology. Simply put, it you accept a payment on your current system and the credit card processor later reports that the card was used fraudulently, you don’t get paid. That is a huge change from the past and it eliminates one of the primary attractions of accepting credit cards as payment in the first place. New security technology known as EMV is on the way to combat the use of stolen credit card information but it won’t be here by October 1 for most of us. At this point we do not even have a clear idea when the new technology will be in place. What is a small business to do in the meanwhile? Small businesses that can’t afford the risk of not being paid  need to plan their response now.

I covered this topic from a strategic perspective in a recent blog post but as a practical matter for many small businesses it comes down to there three simple steps:

1) Use debit instead of credit. Many customers pay with payment cards linked to bank accounts anyway. When presented with a payment card, ask if the customer can use the debit option. Debit bards do not expose the business owner to this new payment risk.

2) If you are dealing in person with a customer you don’t know then get ID. A clear cell phone photo of your customer’s driver’s license will go a long way. (I use Microsoft Lens on an iPhone that reads and imports the customer data directly into the accounting system). Also, make sure that you have the customer’s working telephone number. A pre-delivery customer service call could actually serve a duel purpose here.

3) If you are handling an online or remote transaction simply delay shipment or fulfillment until the payment clears on your bank or credit card processing statement. This is usually only about 2-3 days.

These are the same two safety procedures commonly used by businesses that accept personal checks for retail payments. For now it makes sense to expend these same seller protection measures to credit card payments.

S corporation vs. single member LLC

This issue comes up again and again in my tax practice: why do business owners and professionals establish  S corporations when a single member LLC will suffice? Let professionals continue to set up one owner S corps. Single member LLCs offer the same legal protection but are considered “disregarded entities” for tax purposes.

An LLC is cheaper and easier to set up. Tax filing is easier. Representation in simple legal issues, like a zoning application, can be easier with an LLC.

At a minimum, operating the S Corporation raises your tax preparation fees. S corporation tax retuns are due on March 15. LLCs can file on April 15 the same as individuals. There may be some belief that S-corporations help to avoid wage taxes but that logic does not apply to most small businesses.

It seems that even in those states where an S corporation has a lower filing fee the savings would soon be eroded by higher operating costs.

Small business owners say that the economic recovery is slowing down

The Wall Street Journal reports that “the portion of small businesses reporting that the U.S. economy was improving fell to its lowest level since the government shutdown of 2013”. I suspect that the primary driver is the perception of a coming interest rate increase. This poll was apparently taken before the China stock market drop made headline news.

Stock market crash in a nutshell

Over the past 60 days investors around the world have pulled more than $6 billion in investments from worldwide emerging markets. This caused worldwide stock prices to drop by about 10%. Much of this money has been reinvested in U.S. Treasury bonds. U.S. stocks have dropped about 4% so far as a side effect. The drop may continue today.

Online brokerage trading was up over 230% on Monday, overwhelming some computer systems. Customers of some of the largest U.S firms had trouble logging into their accounts and executing trades.

Investment professional expect a quick recovery in U.S. stock prices. Economists are increasingly concerned about long term trends leaning toward devaluation and deflation. Planners emphasize a strategic approach to the news.


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