financial planning

Why Do You Think Financial Statements Are Required to Be Prepared Using the Same Standards? Financial Planning

Financial statements are prepared in accordance with what? What governing bodies set accounting standards? Why do you think financial statements are required to be prepared using the same standards?

Financial statements are considered to be means of communication as it communicates the financial performance of company to its stakeholders. It is also being used as basis for comparing its performance with its competitors, industry and to see its position in industry. Comparison can be made if all prepare financial statements by following some standard rules of preparation of financial statements. If uniformity is there then it will be easier for stakeholders to understand financial statements. These statements are used by a variety of internal and external users including stockholders, investors, creditors, regulators, employees and senior management.

These statements information needs depends upon the kinds of decisions the user want to make. The users are interested to know how firm is doing in terms of its profitability, its financial position and its overall capacity to meet obligations and expectations of stakeholders. In other words users of financial statements are interested in earning power of the company.

To be more precise Creditors like to see earning power which will show estimated future earnings of the company. If earnings are good it shows that the repayment capacity of the firm will be good. Based on such kind of analysis creditors will decide to supply merchandize on credit basis.

These statements are important for creditors since the accounting information showed in financial statement will help them to evaluate the risks of granting credit or lending money. If they come to conclusion that, risk is low then they will definitely provide credit and vice-versa.

The common rules or set of standards are called as Generally Accepted Accounting Standards (GAAP) which will indicate how These statements or reports need to be prepared. These standards work as a guidance for preparation and following methods of accounting to be followed by all.

Accounting process works on two basic assumptions. These assumptions are monetary unit assumption and the economic entity assumption. The first assumption i.e. monetary unit assumption indicates recording only monetary transactions of business whereas the second assumption says that economic entity can be any organization or unit of a society. This assumption gives emphasis on differentiation of owner and entity.

In U.S. these set of rules or standards are issued by Financial Accounting Standards Board (FASB). Countries outside U.S. use standards issued by International Accounting Standards Board (IASB).

Accounting Homework Help er Answered this diligently.

financial planning

5 Reasons to Purchase an Indexed Universal Life Insurance Policy Financial Planning

As a financial planner, I feel like Indexed Universal Life insurance is one of the most misunderstood and underutilized tools and asset classes in the market today. I believe that this is because of the newness of the product itself. Indexed Universal Life(IUL from here on out) has only been around for a little over 15 years. Because of this, most financial advisors don’t fully understand it. IUL’s came around after they received their education and set their practices. Thus, individuals aren’t learning from experts, but rather, they rely on media pundits for any information on these programs. In an effort to further educate you, and promote a wonderful product, I give 5 reasons to buy an IUL.

The first great reason to have an IUL in your retirement portfolio is the fact that these products provide minimum guarantees. Unlike placing your funds directly into the market, these funds are protected from the market. They earn interest in a unique way. Interest is credited based on the performance of a chosen index. Rather than being invested in the actual market, you merely receive a portion of the index return. Again, the worst-case scenario is that you earn 0% in a given year. You can never lose money due to market fluctuations. Each year that you do earn interest, that interest is locked in and becomes part of the principal amount guaranteed to not be at risk to the market. What a great way to plan for retirement. This system of guarantees also removes the risk of retiring at the wrong time, when your account value is low due to market losses. It also prevents catastrophic damage to your retirement due to losses in the early years of your retirement.

In addition to the downside protection, these products can perform very well; often times outperforming the market returns seen in a typical investment portfolio. So you don’t have to give up a good return to find a safe haven for your retirement nest egg.

The second great reason for purchasing an IUL is the tax-free death benefit.

Life insurance is often used as a tool in estate planning. It is treated favorably by the IRS tax codes. Often, the funds coming from a death benefit from a life insurance policy are passed on to beneficiaries income tax free. Indexed Universal Life is no different. It becomes a wonderful tool to pass on assets tax free. Unlike other retirement options, such as a 401k, the assets held in an IUL pass on without taxes and give you immediate access to the funds, unlike assets held in real estate. It is also very typical, due to the death benefit common in all life insurance policies, that the death benefit will exceed the accumulation value of the account, meaning you not only leave more to your beneficiaries by paying less in taxes, but also because of the higher death benefit.

The third great reason for looking at an IUL is for the incredible supplemental retirement income that can be generated from it. What if you could put an unlimited amount of money into a Roth IRA, pay taxes on the principal now and have an income generated, tax free, for your retirement, and you could even access it early if you wanted? That would be an incredible deal, right? Well, it exists. It’s called an IUL. You can create a tax-free income through these IUL’s without having to worry about the timing of the market. Rather than rolling the dice of where the tax brackets fall out over your lifetime, why not draw at least part of your income through a program that allows you to fund it limitlessly, and not have to worry about paying taxes on the gains?

This is achieved through policy loans. It’s a new concept, but hear me out. Through a policy loan, you are able to draw out an income from your IUL tax free. Everyone always asks me “what if tax laws change?” Valid question. In theory, it is possible that the laws change and these funds do become taxable, but that would be odd. The government doesn’t tax our loans, only the asset by which the loan is guaranteed. Think for example of your car loan… you pay a property tax on that auto, but you don’t have to treat the loan from the bank that you used as income because it wasn’t income, you have to pay it back. These policy loans function the same way.

Diversification is the fourth reason to purchase an IUL. Since the bulk of your retirement funds are probably in taxed deferred savings accounts, like traditional IRA’s and 401k’s, IUL’s can provide a diversification, not only in asset class, but also in the tax treatment of the account. We typically believe in diversification and have been taught that since our high school years, yet we all have our retirement in the same types of vehicles. All are tax-deferred time bombs with minimum distribution ages and minimum distribution requirements or maximum contribution amounts controlled by the government and current economics in the USA. We are all typically in a blend of stocks and bonds, crossing our fingers that when that day comes to retire, we are up, not down. Hopefully we’ve picked well, though we be uneducated as can be, and yet we bank on this as our retirement program and a whole industry has built itself around it. Amazing that we’ve heard this same concept preached for over 2 decades and we’re still drinking the kool-aide. I’m not going to tell you to not drink, just try a different flavor for a minute. It should be noted that when taxes go up, and they inevitably will, you will pay taxes on those funds that are in taxed deferred accounts. This can hurt the value of the dollars you have saved in those accounts. There is also a little thing called an RMD. Required Minimum Distributions are what the federal government requires us to withdraw from our retirement accounts, based on our age, as a percentage of our account balance. There is always the possibility of these percentages increasing so the taxes can be collected on these funds. This could also cause you to withdraw funds you don’t need. An IUL gives you a great hedge against these potential tax issues.

Finally, the fifth reason to purchase an IUL is because they allow you to work towards becoming your own banker. Have you ever found it odd that you borrow money from a bank even though you have money in the bank? I have. Most IUL’s have loan provisions allowing you to borrow from and pay back your life insurance. The nice thing is, by doing this, you pay yourself the interest rather than the bank. You continue to have a retirement fund that is growing and you aren’t losing years’ worth of interest to the bank. Think of all the interest you have paid for credit cards, auto loans, your mortgage, etc. You can borrow yourself the money instead and you don’t have to worry about the approval process at the bank. Many business owners feel that term insurance is the only type of life insurance for them because they don’t want to tie up their money. This is a false assumption. The funds “tied up” in life insurance are not locked up, but rather, provide more access to funds than most investment opportunities. The funds can be borrowed and replaced with relative ease, making it a wonderful program for creating your own personal banking system.

One final little bonus is that your IUL is permanent insurance, as long as it is built correctly and you fund it properly. You’ll likely have lifetime coverage, even after stopping your premium payments and taking withdrawals. Long after your term insurance is gone, you’ll still have a death benefit to leave those you love.

For these reasons, along with many others, indexed universal life insurance is a great way to help fund your retirement. It is not perfect for all situations, and it is always wise to consult your advisor before purchasing any retirement funding program. That being said, there are five reasons you should give your advisor a call and find out if an IUL is right for you.

financial planning

Registered Disability Savings Plans (RDSPs) Explained Financial Planning

RDSP stands for Registered Disability Savings Plan. The RDSP works as a Canadian savings plan similar to the Registered Education Savings Plan (RESP). To be eligible for an RDSP, an individual must qualify for the Disability Tax Credit, and be under the age of 60. The disabled individual who receives the funds invested in the RDSP is called the beneficiary.

Contribution to a disabled individual’s RDSP can be made by anyone with written permission from the plan holder. The plan holder can be the disabled individual (if they are of legal age, and are legally able to enter into a contract), a legal parent, a guardian who the beneficiary has authorized to act on his/her behalf, or a public agency that is legally authorized to act for the beneficiary.

Contributions to the plan can be made until the year in which the beneficiary turns 59. There is an overall lifetime limit of $200,000 on the contributions that can be made to a plan, but there is no annual limit on the amount that can be contributed.

Government Grants & Bonds

A unique feature of the RDSP, and something it has in common with an RESP, is that contributions made are matched by the government of Canada. This comes in the form on the Canada disability savings grants (CDSG) and the Canada disability savings bonds (CDSB). The CDSG and CDSB can received until the year in which the beneficiary turns 49.

The CDSG has a lifetime limit of $70,000. An individual can receive up to $3,500 of matching grants, with a contribution of $1,500. The schedule for matching, for the year 2010, can be found at this CRA link: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rdsp-reei/cdsg-eng.html.

The CDSB has a lifetime limit of $20,000. The bond does not require contributions to be made. The schedule, for the year 2010, can be found at the previously posted link.

Grants and bonds received in any of the ten preceding years of the following events must be repaid to the government:

  • the RDSP is voluntarily closed
  • the plan is deregistered
  • a Disability Assistance Payment (DAP) is made from the plan
  • the beneficiary is no longer eligible for the Disability Tax Credit
  • the beneficiary dies

Is an RDSP Better than a TFSA or an RRSP?

In some cases, a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP) may be more lucrative than an RDSP. This is due to the fact that individuals receive a tax break when withdrawing from a TFSA and when contributing to an RRSP. There is no such tax break for an RDSP, which instead has the grants and bonds, which the other plans do not.

RDSPs are also more restrictive than TFSAs in when and how you can withdraw the funds within the plan. A reliable financial planner would perform calculations based on the grants, bonds and tax considerations, to see which plan is the most beneficial.

Conclusion

RDSPs are a great alternative for disabled Canadians, although they are not the only option. One must weigh the pros and cons of all savings plans, considering factors such as rate of return and the accessibility of invested funds.

Still, RDSPs are a great option for family members of disabled individuals, who would like to set up a trust for their disabled relative, and the grants and bonds can be lucrative to a low-income taxpayer.

financial planning

Event Planning Facts Financial Planning

Event Planning or management is most probably similar in analogy to planning a typical birthday party, where the preparations need to be set up in the most effective ways. However, there are more intimate details in event management that needs to be paid close attention to.

Nowadays, the term Event manager seems to refer to an easy yet sophisticated and chic profession. Yet in actuality, there are consequences and accountabilities that are attached to this classy title of being a service provider. The name suggests the job profile of an event manager involves organizing a special affair. Concepts have to be visualized, planned, budgeted, and executed in events that are often highly regarded such as fashion or beauty shows, concerts, corporate seminars, exhibitions, wedding celebrations, theme parties, product launching, etc.

What is good about this career and its gaining popularity is the minimal requirement for financial investments, yet it allows the planner to be independent and flexible. Personal traits, character and attitude are of more importance in event planning. The planner of events must possess a real passion in holding or conducting affairs, they need to be organized and able to work in flexible and often extended hours. Although this exciting career among the younger generation may have been seen as a sensational one, it also demands a substantial amount of hard work and effort. Perfection is a major quality that must be achieved in any event management and therefore requires a great quantity of patience, good communication skills and comprehension to be practiced by an event manager. Duties must be discharged with efficiency, challenges must be confidently faced and situations must be given due attention and reaction. Team spirit, leadership and organizational skills are as well required in event planning. Every detail no matter how minute must be paid close attention to.

There are also courses available to be taken by anyone who decide on taking a career in event planning. Eligibility courses usually requires to have a bachelor’s degree in any discipline but most preferred are management-related fields, social sciences, liberal arts and humanities. Individuals who are of interest simply have to finish these courses that are offered in many academic institutional and universities. Short term certificates as well as post graduate MBA courses may also be taken. Major areas of principles and techniques must also be mastered to effectively perform and execute the duties of an event planner. These principles include public relations, organizational development, communication and implementation.

Training and experience also contribute in becoming an adept and qualified event manager. While at school, the aspirant may work as an event staff personnel for sporting festivals and leagues. If there are local music shows to be held, assist in the preparation. Internships also play a major role in molding a successful planner.

Upon completion of qualifying courses, the event planner can join established companies in event planning or they may choose to set up and start their own business. Employment are available from corporate and public sectors, government agencies, tourist agencies, hotels, banks and other financial institutions, private consultancy firms etc.

financial planning

Laundromat Business Plan – Sample Layout Financial Planning

These days most experts will advise you to create a business plan before you decide to take the risks that are associated with starting a business. A laundromat is typically a little more complicated than other small business models so the need for research, planning and a clear direction are even more essential for entrepreneurs entering the coin operated laundry industry.

A laundromat business plan will help you to prove to yourself that your ideas are viable. With a plan in place you will be able to set clear goals and map out a path towards achieving them in an organized manner. A sound business plan may become essential if you have to show it to financiers or investors prior to getting the startup funds that you need. Lastly it will help you to be more realistic and to ask yourself some tough questions about your ideas.

In this article we have set out a sample laundromat business plan layout. We have set out some examples of titles and content that you might consider using. Feel free to use it as a template as you proceed to put your own plan together.

Cover Letter

Your plan should be set out neatly in a folder with a cover that outlines what the report is about and who contributed to it. It is likely that many different parties will read your plan so you may consider attaching a cover letter to each one that addresses the reader specifically, highlighting the concerns that they will have.

Contents Page

If the plan is any longer than a couple of pages you should include a table of contents. This includes a list of all headings and sub-headings together with a page reference so that the information can be located quickly by the reader.

Executive Summary

An executive summary is a simple introduction to the report. Give the reader a brief introduction to your business plan and summarize each of the sections in the plan.

Mission Statement

While not essential, some businesses like to set out a mission statement which outlines their purpose or business philosophy. It usually covers non-financial motives. For a laundromat you might say that you strive to provide the best service to your customers or that you want to provide a clean, safe and efficient way for them to do their laundry. Your mission should be to do your best for the customer and to be better than your competitors.

Background

Provide readers with some background information on yourself and any other individuals who are involved with the proposed laundromat. Readers may want to know what your qualifications are and if you have had any experience in business or in the coin laundry industry.

Provide a background on the local coin laundry industry so that readers get a better understanding of the opportunities that are available.

If your planning has been in progress for a while then you might want to update the reader on what stage you are at. If you are considering purchasing an existing laundromat then you will want to outline the history of the business in this section too.

Business Description

Offer readers a basic description of the proposed coin laundry business. When will your new unit open for business? Where will it be located? Will you have an attendant on-site at the laundromat all day or only part-time?

Goals and Targets

Set out a list of realistic targets that you want to achieve with the business in the first year or two. Such targets could be financial and relate to gross or net profits on a monthly basis. They could also be related to other metrics such as membership numbers or customer satisfaction rates. Thinking longer term you may also set goals to expand into new locations.

Startup Requirements

Before you can launch your new laundromat business you must know exactly what you are going to need and how much it will cost. Costs will include everything from equipment purchases, renovations and marketing along with professional fees and compliance costs.

Once you have listed everything out you can then work out the total startup cost. From here you can mention some of the options that you have for funding the laundromat. Mention how much you will be able to contribute yourself and how much external funding you will require.

Products and Services

Go through the services that you plan on offering to customers. As well as a basic machine laundry service with washers and dryers you may also offer more upmarket services like ironing or dry cleaning. Make a note of the products that will be vended onsite. Obviously you will sell washing related products like soap powder and fabric softener but you may also offer non-related products like coffee and soda.

Market Analysis

As a prerequisite to writing a plan you should have done at least a little market research around the area where you propose to open your coin laundry. You can present your findings in this section of the plan.

In your research you should attempt to discover if there is sufficient demand for a laundromat in the area in question and if so, exactly what kind of services the people within this target market want.

You also need to consider the competition that you have in the local area. Produce a map that shows your customer catchment area bearing in mind that customers will usually go to the laundromat that is more convenient for them to get to. Look at the strengths and weaknesses of your competitors. Is it going to be possible to pull customers from the catchment area of competing laundromats? Can you make your service that much more attractive than theirs?

Marketing Plan

Set out a plan to bring new customers into your laundromat and to convert them into regulars. The marketing component of your plan should cover everything from the development of your brand, pricing, advertising, other marketing methods and customer service.

Remember that in the laundromat business you will be relying on building long term relationships with regular customers. You not only need to focus on bringing in new customers but you also have to focus on satisfying and ‘over delivering’ to your existing customer base. If you retain your customers and please them then you will also benefit by referrals and ‘word of mouth’.

Business Operations

Set out a plan for the daily operation of your laundromat. Make a note of the equipment that you will have in place and how the demands for water and energy will be met. Mention how you plan on maintaining the machines.

Discuss your daily staff requirements. What role will you, as the owner take in the daily running of the laundromat? How many employees will you need and what will their responsibilities be?

What other systems will you have in place to ensure that the laundromat runs smoothly on a daily basis and that you can control and manage the business efficiently. Will you have a computer system to keep track of stock and cash flows? What about a security system?

Financial Analysis

Lastly, but most importantly, a sound business plan will include detailed financial forecasts over a period of two to three years. This data is best displayed in spreadsheets so that you can set up a column for each month. Some businesses include more than one spreadsheet to allow for different situations. You may consider including one as a best case scenario and others that show revenue growing at a slower rate than is expected.

Try to identify a break even point where the business would basically be running without making a profit, but without losing money at the same time. Then you will have an idea of the customer volume that you will have to aim for. To calculate break even point you need to assume an average customer spend per visit and then calculate the number of customer visits needed on a monthly basis.

If you are borrowing money to start the business you should also include a repayment schedule to show how fast the loan will be paid back.

Appendix

Many assumptions are made in business plans so it is important to be able to give reasons as to why you made such assumptions. Rather than guessing you should try to include data that backs up your theories. Include an appendix at the end of your plan that includes all supporting materials that don’t fit conveniently into the pages of the report. These could include maps, pictures, spreadsheets, tables and lists of references and sources to name just a few examples.

financial planning