Did You Count Your Inventory?

inventory

Did you know understating your inventory understates income (and vice versa)? If you carry inventory, managing it is no easy task. In fact, I’m amazed how many businesses still rely on the old fashioned “counting” method. Quick Accounting 101 on this. If you understate your inventory, you have more on hand than what your books show. Or, you wrote off inventory that’s still sitting in your warehouse. Put that unrecorded inventory back on your books and income goes up. It’s the opposite when you overstate inventory. You’ll have to write it down to the correct level. Inventory should be recorded at cost.

Who Cares?
This can move your income a lot in either direction if you get it messed up. Let’s say you didn’t update your inventory since the prior year and it showed on your books at $100,000. You forgot to count it and sent in your tax return and bank financial statements. It was $150,000 after the count – short by $50,000 or 50 percent! That also means you understated your income to the IRS and the bank by $50,000 too. That’s double bad but don’t bury your head in the sand. We all make mistakes. Get it corrected and amend the tax returns and financial statements. More importantly, start checking into real-time inventory management systems that will keep you on track.

What Else?
There’s another domino here. This will also impact the value of your business. $50,000, reduced by taxes of 30%, and divided by an estimated 16% rate of return is over $200,000 of “lost” value. Wow, better get this right going forward–especially if you’re buying, selling, or involved in divorce or litigation. Losing $200K is a really bad day.

If you’re struggling with this, hit me back with a message. There’s nothing to be embarrassed about since others are too.

Thanks,
Josh

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Can I Help You?
Hi, I’m Josh Horn, CPA/ABV, CVA of Horn Valuation. I help with business valuations in friendly or unfriendly situations. I also help owners build valuable companies. My clients are business owners and attorneys. If you’d like more information, check out my website hornvaluation.com, email me at josh@horncpa.com, or call me at 217-649-8794.

Josh Horn CPA

I’m a licensed Certified Public Accountant (CPA) and double-credentialed in business valuation (CVA & ABV). I’ve been a tax and business consultant in a top 100 CPA firm and a controller in a large international company. I’ve also valued and been the primary advisor to multi-million dollar and small companies in various industries.

“If you’re not working on business value, who is?” Josh Horn, CPA, Certified Valuation Analyst and Accredited in Business Valuation

Are Those Losses Real? This is How You Find Out

losses

Hey everyone,

Whether you’re running a business or buying one, it’s important to understand losses. By “losses”, I mean when expenses exceed sales. In simplest terms, it’s when the income statement or profit and loss shows a negative number. You don’t need to immediately panic. You need to review the causes.

Here’s my list for non-accountants:
-> Are there personal expenses? (Pull those out).
-> Is it a Tax loss or a Cash loss? (You care about Cash).
-> Cash losses can’t keep going unless more money is invested or borrowed.

Or, stated another way…
-> Is the business worth more “alive than dead?” (Supporting a family without more debt, capital, or fraud).
-> How much cash is going in the owner’s pocket? (Assuming they’re following the rules).

Yes, there’s a lot more I could teach you about accounting if you had the time. But you don’t, so this will put you ahead of 90% of the world.

Thanks,
Josh

Sign up for this blog here and connect with me on LinkedInFacebook, and Twitter.

Can I Help You?

Hi, I’m Josh Horn, CPA/ABV, CVA of Horn Valuation. I help with business valuations in friendly or unfriendly situations. I also help owners build valuable companies. My clients are business owners and attorneys. If you’d like more information, check out my website hornvaluation.com, email me at josh@horncpa.com, or call me at 217-649-8794.

Josh Horn CPA

I’m a licensed Certified Public Accountant (CPA) and double-credentialed in business valuation (CVA & ABV). I’ve been a tax and business consultant in a top 100 CPA firm and a controller in a large international company. I’ve also valued and been the primary advisor to multi-million dollar and small companies in various industries.

“If you’re not working on business value, who is?” Josh Horn, CPA, Certified Valuation Analyst and Accredited in Business Valuation

Don’t Gamble with Divorce Tax Returns

gamble

If you’re concerned about using a business tax return for child support, maintenance, and assets in your divorce case, you’re in the right place. It’s a dangerous gamble unless you know what to do. Learn how you can spot the seven red flags and fix them. We begin with a typical business tax return, walk through the red flag adjustments step-by-step, and quantify the impact. You’ll be amazed how much you could be leaving on the table.

The Seven Red Flags of Business Tax Returns guide is here. This is a bullet-point instruction document that defines the seven red flags, provides guidance on why the red flag matters, and gives you detailed steps to fix each red flag. Don’t skip these steps if you’re using a business tax return in divorce.

Secure link to the video here or on YouTube here:

Call me if you would like to discuss valuing a business in divorce or litigation.

Thank you,
Joshua L. Horn, CPA/ABV, CVA
Horn Valuation
Phone: 217-649-8794
Email: josh@jhorncpa.com
2901 Boardwalk Dr., Suite A, Champaign, IL 61822

Horn Valuation is for attorneys, judges, and business owners who believe there’s an easier way to settle business disputes and want to work with a valuation expert using fixed fees. I’ve been a CPA since 1999, a certified valuation analyst since 2008, and valued mom and pops to multi-million-dollar businesses. Call me today if you’re interested in working together on a valuation solution.

Busy Means Nothing. What are You Busy Doing?

busy

I do my best not to “hate” anything. It burns you up inside and takes away from the good you can offer the world. I’m making an exception for this. I absolutely detest the word BUSY, and I’m making it my mission to kill it. Every time I ask someone how they are, and they say, “I’m busy”, I want to scream at the top of my lungs…

“WITH WHAT?!”

Busy tells us nothing. It’s a conversation stopper because it’s all about the person saying it. It’s an expression of exasperation, inability to articulate, and an appeal for pity. For the sake of your health, relationships, and your business, please consider removing it from your vocabulary. And, yes, I catch myself doing it too and it’s stupid.

Here’s another way of looking at it. When you finish your day, can you honestly say you did one or more of these…?

-> Started a good habit.
-> Stopped a bad habit.
-> Complimented someone.
-> Read something important and did it.
-> Improved a process for someone else.
-> Created something valuable and gave it away.
-> Wrote someone a personal letter.
-> Educated your customer…free of charge.
-> Hugged someone.
-> Exercised. No, really exercised.
-> Sat in complete silence with no cell phone. Just thinking.

…or did you spend the whole day running around with your hair on fire? Wouldn’t it be more empowering to say you did something other than be “busy?”

Corny? Too soft? Maybe. Or maybe you’ve just been too busy. Too busy to slow down and do the important instead of the urgent. Let’s work together to kill busy. Because busy is killing us, our families, and our businesses.

Thanks,
Josh

Sign up for this blog here and connect with me on LinkedIn and Facebook.

Can I Help You?

Hi, I’m Josh Horn, CPA/ABV, CVA of Horn Valuation. I help with business valuations in friendly or unfriendly situations. I also help owners build valuable companies. My clients are business owners and attorneys. If you’d like more information, check out my website hornvaluation.com, email me at josh@horncpa.com, or call me at 217-649-8794.

Josh Horn CPA

I’m a licensed Certified Public Accountant (CPA) and double-credentialed in business valuation (CVA & ABV). I’ve been a tax and business consultant in a top 100 CPA firm and a controller in a large international company. I’ve also valued and been the primary advisor to multi-million dollar and small companies in various industries.

“If you’re not working on building value in your company, who is?” Josh Horn, CPA, Certified Valuation Analyst and Accredited in Business Valuation

This Is How to Not Pay Too Much for That Business

too much

Are you thinking about buying a business? Are you a “do-it-yourselfer”–someone unlikely to hire someone like me to decide whether the price is right? I can’t stop you even though I’d like to scream, “No! Wait! Do you know you could pay too much without a valuation analyst? Too much as in $10,000, $50,000, $100,000, or even $1 million?”

OK, that’s your call. I have a strong suggestion and it may only take a few minutes of your time. And you can sidestep me altogether. The suggestion is to sanity-check the value using…

Payback Period

What’s “Payback Period?” It’s a method for determining how long it will take for the business to pay back your initial investment. With Excel, determining Payback Period takes seconds. You only need 3 variables:

  • Value Seller is Asking
  • Estimate of Your Interest Rate on a Loan (Assuming You Can Get Deal Financing)
  • Estimate of Ongoing After-Tax Cash Flow from the Business

Determining ongoing after-tax cash flow is not for the uninitiated. It’s not “Sales.” It’s not “Profit.” Without an accounting background, determining it will be very tough for a beginner. An additional related problem is the distinct possibility the seller’s records are poor or even nonexistent. Then it gets really dicey. You’ve been warned.

Using the Excel formula “NPER” is the easiest way to do this. Here’s a simple example of a business with an estimated value of $600,000, interest rate of 7.50%, and after-tax cash flow of $100,000. Note the down payment.

This implies the buyer could “Pay Back” the loan used to finance the purchase of the business in 6 years. Not too bad if the buyer is confident he or she can manage that. The longer the loan term and the less likely financing could be arranged, the more likely the business is overvalued.

Let’s run the figures again with a higher estimated value of $800,000.

It would take nine years to Pay Back your loan–assuming you can even get one for that long. Oh, and notice how you may have overpaid $200,000 or more for the business. Yikes!

$200,000 buys a lot of good advice!

Facts and circumstances come into play and every situation is unique. If the business was experiencing very high growth and that’s expected to continue, nine years could be reasonable. You have to use your head.

Did I mention you might want to get some help with this?

After a disaster one of my valuation colleagues and I witnessed recently, I said, “if they’d only run Payback Period against their value, they would have known it was insanely high.” Unfortunately, this is like showing up at a building already engulfed in flames. You must use Payback Period before you do the deal not after. The results aren’t pretty. Bankruptcy, lawsuits, divorce, and even death can happen without good advice on value. I’ve seen all the above.

I feel compelled to give you tools if you insist on doing it yourself. You’re assuming all the risk and I can’t stop you. If you have a change of heart, you know how to reach me.

Thanks,
Josh

Sign up for this blog here and connect with me on LinkedIn and Facebook.

Can I Help You?

Hi, I’m Josh Horn, CPA/ABV, CVA of Horn Valuation. I help with business valuations in friendly or unfriendly situations. I also help owners build valuable companies. My clients are business owners and attorneys. If you’d like more information, check out my website hornvaluation.com, email me at josh@horncpa.com, or call me at 217-649-8794.

Josh Horn CPA

I’m a licensed Certified Public Accountant (CPA) and double-credentialed in business valuation (CVA & ABV). I’ve been a tax and business consultant in a top 100 CPA firm and a controller in a large international company. I’ve also valued and been the primary advisor to multi-million dollar and small companies in various industries.

“If you’re not working on building value in your company, who is?” Josh Horn, CPA, Certified Valuation Analyst and Accredited in Business Valuation