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Debtors' Payments: Fuzzy Approach to Planning
The financial aspect is essential to any kind of business. How a company receives funding and incomes determines its overall welfare. For any B2B company, one of the major concerns is the control over the payments of the non-bank debtors, i.e. the payments resulting from sales of goods and/or services. Indeed, this inflow enables the company to assess its efficiency, playing the role of the factor underlying the company's profits. Having produced some goods or services, the company sells the ware, receiving money for the ware -- which becomes income. The company crucially needs this income in order to be able to buy some raw materials and equipment needed to produce new portions of goods. Thus, it is essential that the company receives income regularly. What is regularity, in this case? It's in fact receiving the money on a predetermined schedule. The one that has been formed with a necessity in mind to meet the company's needs in financing its expenditures. However, we are living in a REAL world, which means that, inevitably, there are delays in debtors' payments. This, in turn, can lead to a complete breakdown of the financial plan. The latter may cause a non-reversible failure of the company. Effective planning of these delays is the key to successful financial management.
How is accounting used in business?
It might seem obvious, but in managing a business, it's important to understand how the business makes a profit. A company needs a good business model and a good profit model. A business sells products or services and earns a certain amount of margin on each unit sold. The number of units sold is the sales volume during the reporting period. The business subtracts the amount of fixed expenses for the period, which gives them the operating profit before interest and income tax.
What Will You Take For A Dollar?
The other day I sat in a meeting listening to a young man extol the virtues of owning real estate. Much of what he said was true. However two things made me sit up and take notice. I couldn't help but comment.
Following Conventional Wisdom Could Cause This Fatal Million Dollar Mistake
Conventional Wisdom States Buy a House Get a Fixed Rate Mortgage and Make Extra Payments to Pay Your Mortgage off as Fast as Possible. If you follow Conventional Wisdom you will be making a Million Dollar Mistake. Keep Reading to find out why.
(This Example is Similar to one Used By Ric Edelman in his New York Times Best Seller the Rules of Money)
You have a good job and you decide it is time to buy your first home. You find the Perfect Home in the Perfect Neighborhood. It is a $200,000 Home. If You follow Conventional Wisdom you will purchase that $200,000 Home with 20% Down. You will get a 15 Year Fixed Rate Mortgage at 5.25%. Your Monthly payment would be $1286 a Month and you pay an Extra $100 so you can pay off your Mortgage Early.
The Unconventional way Get a 30 Year Interest only mortgage (Interest Only for first 15 Years then Fully Amortized over last 15 Years) with a 5% Down Payment. Your Monthly Payments are $970 all of which is Tax Deductible and you have $30,000 leftover to invest. (The rest of this Example assumes you will invest your After Tax Savings and the $30,000 at 8%)
At the end of 15 Years Using the Conventional Method your House would be paid off and you would have almost $28,000 in Savings and Investments. (Remember you paid an Extra $100 a Month to pay off your mortgage Faster. You are now Investing your Total Monthly Mortgage Payment plus that $100 at 8%)
At the end of 15 Years with the Unconventional Method you would still owe $190,000 on your house but you would have over $300,000 in savings and Investments. (Enough to Pay off your Mortgage if you want too and still have over $110,000 in your Pocket)
At the End of 30 Years using the conventional method you would owe your home free and Clear and you would have slightly over $570,000 in savings and investment. You would have saved almost 21,000 in Taxes
At the End of 30 Years using the Using the Unconventional method you would own your home free and clear and have slightly over $1,220,000 in savings an Investment. You would have saved over $88,000 in Taxes.
Let's Assume that the $570,000 and $1,220,000 Continue to Remain Invested at 8%. In 5 Years the $570,000 Would Grow to just under 838,000 the $1,220,000 Would Grow to Just Under $1,793,000. A Difference of Almost $1,000,000. In 5 More Years the Difference would grow to over $1,400,00. By Listening to conventional wisdom you have now lost well over $1,000,000 Dollars
About the Author
Mike Makler is a Financial Consultant in the St Louis Missouri Area Specializing in Real Estate Loans and Annuities. To Learn More Call Mike at 314 398-5547 or Visit Mike's Web Page: http://ewguru.com/finance
Get Mike's Newsletter Here http://ewguru.com/fin-news
Copyright © 2005-2006 Mike Makler
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