Have you noticed how the word “perfect” has crept into our lexicon? Someone asks you a question and when you reply, the reply back to you is “perfect.” And that seems a little much—given that most replies are not perfectly exact. Answers may be “great” or “wonderful” or “excellent,” but perfect? Hardly ever.

A “perfect” game pitched in baseball—27 up and 27 down—now that is perfect! A hole-in-one in golf—also perfect! A presentation to the board? Maybe it was really good. But no doubt there was at least some slight imperfection.

Which brings us to the perfect investment. Invariably, not a week goes by that someone does not call me seeking the perfect investment. I think I am an outstanding financial professional, but I have yet to find any client or prospect the perfect investment. And for one simple reason—it does not exist.

Here is a list of what a perfect investment might look like:

• No risk—not any part of the investment could ever be lost due to market activity or any other reason.

• High rate of return—a yield that outperforms inflation and taxes while still giving you a solid return.

• No income taxes—never any income taxes due on the investment growth with the client keeping all that it earns.

• Always available—100% liquidity with complete access to redeem all or part of the investment at any time without penalty.

• Easy as pie—an investment anyone could manage at any time without having any special financial knowledge or training.

The age-old advice for someone who comes across an “investment” with all of these attributes: If it sounds too good to be true—it is!

However—and be glad there is a however when doing due diligence—asking certain questions will help you to focus in on the alternatives and aid in making the wisest investment choice given specific financial needs. For example:

• What is the purpose of the investment? This is the most important question to ask and the answer should be as specific as possible.

• What is your risk tolerance? Will you be able to sleep whenever the markets suffer a hiccup, or do you have the ability to ride out short-term ups and downs in exchange for potential long-term growth?

• When will you need the income you expect the investment to generate? Simple, right? A short-term investment to meet long-term goals, and vice versa, is a recipe for disaster.

• What amount do you have to invest? Your financial professional can recommend various options based on the sum you have to invest.

• Are income taxes a concern? Different investments offer different tax treatments. Your tax bracket plays a part in this question as well.

• In what state is the economy? This is last on the list because the economy’s current (and future) condition is out of your control. But it must be taken into account and is another topic to be considered when meeting with your financial adviser.

So there you have it—attributes to seek and questions to ask. Unfortunately, you won’t find the perfect investment. But asking the right questions about your financial needs and building a financial foundation that includes the proper mix of investments and insurance—including life, health, disability income and long term care—will help you meet many of life’s financial needs.

Even without the “perfect” investment.

Joseph Pilla is V.P. Advanced Strategies & Business Advisory Services for XXI 21^st Century Financial 216-545-1781. Custom designed strategies for both individual & businesses through uses of; Business Valuations, Premium Financing, Business Succession/ Asset Protection/ Insurance/ Wealth Transfer/ Investment/ & Retirement Planning.

©2018 The Penn Mutual Life Insurance Company, Philadelphia, PA 19172

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With all of the day-to-day business operations entrepreneurs are faced with—product development, human resources issues, and business development to name just a few—it might be easy to lose track of a business’s balance sheet strategy.

“A lot of small business owners don’t understand their business’s costs,” says Brian Alquist, president of business consultancy 1Direction, Inc., in Brecksville. “Consequently, they’re really just focused in on the cash they have at the end of the month.”

But operating a business requires a much more comprehensive plan than just focusing on what’s left over when the month comes to a close, experts say. It requires detailed thought around the best way to think about setting financial goals and KPIs, access to capital, accounting best practices and more.

‘Build backwards’

One of the first things an owner needs to do is settle on what the organization’s goals are, says Michael Foss of Foss Business Solutions in Lyndhurst.

“Build backwards,” he advises. “What are our current expenses? How do I want to grow? What do I need to do to achieve that?” Once those questions are answered, the business owner will begin to be able to form a clear picture of the sales (and gross profit margin) the business needs to obtain to achieve those goals.

This is where understanding your cash flow comes in, says Rion Safier of Rion Safier Accounting LLC in Beachwood. For a small business, cash flow is king and the company’s budget and cash flow forecast

“There are companies that don’t have an accounting infrastructure and the business owner is just flying by the seat of their pants and using their bank balance as one of their key drivers,” he says. “That’s not a good way of looking at it. What if your receivables are delayed? Your cash might be depleted. Only looking at the cash balance is not an indicator of the health of a company.”

Measure effectively

What businesses should be paying attention to is working capital, or the capital a business uses in its day-to-day operations and calculated as current assets minus current liabilities, Alquist says.

“That tells me how well they’re really managing the financial aspect of their business on a day-to-day basis,” he says. “If the company has some level of capital invested in the business, I would also look at the ratio of depreciation to expenses. That tells me if they are investing or reinvesting in the business.”

You got through the holidays and made it back to your business.  Congratulations!  Now it’s time to give your business a gift by lowering your interest rates. The coldest months are a good time to hunker down and analyze how to squeeze more profitability out of your income statement. Reducing interest expense is probably the least painful way to do so.

According to a study by the U.S. Small Business Administration Office of Advocacy, only 12% of businesses use a business loan for capital when they are starting out. Business and personal credit cards account for almost twice as much of entrepreneurs’ starting capital.  That’s a little surprising because most savvy business owners are aware that carrying balances on credit cards results in interest rates well over 16% these days, according to bankrate.com. Some “fintech” solutions may have effective interest rates that are even higher. The fintech industry includes names like OnDeck and Kabbage.

Credit cards and fintech loans are easy and fast, and entrepreneurs love that combination. For many entrepreneurs, ease and speed are worth the extra expense, until they start adding up the cost. 

Here are some options that might work for you.

Microloans

The SBA offers microloans to borrowers who, for whatever reason, cannot qualify for regular bank financing. When an entrepreneur gets started by running up credit card balances, it may adversely affect the personal credit score of the owner, a double hit because it locks out the entrepreneur from many typical routes of refinancing.  Enter the microloan.

“Taking out too many credit cards will reduce personal credit scores and make it even more difficult for a traditional lender to offer a loan,” says Patty Ajdukiewicz, relationship manager for the Economic and Community Development Institute.

The Economic and Community Development Institute (ECDI) provides SBA microloans to qualified individuals who can meet certain basic eligibility requirements and show repayment ability. Microloan rates range from 9% to 12%. That is more expensive than a traditional bank loan, but a fraction of the costs of credit cards and fintech.

Ajdukiewicz notes entrepreneurs should anticipate having to pledge all available collateral when they refinance a credit card loan. While a credit card may leave fixed assets unencumbered, the lender is compensated for that lack of collateral with a high rate. An ECDI Microloan could cut the interest rate in half, but you should anticipate a lien against your business assets, and perhaps personal assets as well.

Community advantage

For slightly larger transactions, Growth Capital Corporation’s Community Advantage program is also available.

“I’ve got one now that we’re approving today. They’re 13 years old and have revenues of $1.3 million.  They have over $100,000 in credit card debt. Thirteen years and they have never gotten good advice,” says Kate Kerr, program director.  She adds that most of the clients she works with have one or two credit cards, perhaps to take advantage of refund points or free travel. But some companies might end up with dozens of cards, and the debt load quickly becomes unmanageable. 

A key difference between responsible term loans and credit card debt is the ease with which the transaction is completed. Credit cards are the easy path, but you pay for the convenience. Expect a much higher degree of due diligence from a lender like Kerr. The rate is much lower, but you must have your financial statements in order. 

For example, businesses need to have their tax returns filed so that the loan can be underwritten, Kerr says. Your accountant may have the ability to get you an extension on your taxes, but if you’re in the process of applying for a loan, that is actually not at all helpful.  SBA-backed loans such as Community Advantage or microloan typically need financial statements current within 120 days of application.

You can also refinance high-rate loans through most traditional banks. SBA’s loan guarantee programs are available to assist any participating lender, if there is not sufficient capital or time in business to justify a conventional loan. 

If you must use fast credit, use the business name

When the outstanding debt is in the name of the business, it is easier for a bank to refinance the higher rate debt. SBA only asks that the bank obtain the applicant’s certification that the debt incurred was exclusively for business purposes.  If the balance includes personal expenses as well, these amounts must be excluded.

When the outstanding debt is in the name of the individual owner, it is much more difficult. Lenders must document the specific business purpose of the credit card debt and the applicant must certify that the loan proceeds are being used only to refinance business expenses. Documentation required will include a copy of the credit card statements and individual receipts of any expenses in excess of $250.

If you must start your business on a credit card, at least try to get a card that is in the business name.  That will make a future refinance request much easier for the lender to process.

Ray Graves works in lender relations in the SBA’s Cleveland office.

The Bipartisan Budget Act of 2015 (the “BBA”), which implements new rules for auditing partnerships and LLCs taxed as partnerships (1) went into effect in January 2018. Under the new BBA procedures, if selected for an audit, any adjustment for a partnership tax year is determined at the partnership level. If the adjustment results in an underpayment of tax, the IRS will assess and collect the imputed underpayment, interest and penalties from the partnership, not from the individual partners, and the payment will be determined using the highest individual or corporate rate of tax.

While any IRS adjustments will relate to the tax year reviewed, the imputed underpayment will be assessed in the adjustment year when the audit is completed. As a result, the remaining (or new) partners during the adjustment year may bear the underpayment liability, not the individuals who were partners during the reviewed tax year. The BBA allows partnerships to annually opt out of the BBA audit procedures. 

• RELATED: Here’s what you need to know about the structure of LLCs.

This can be accomplished by making an annual opt-out election on a timely-filed partnership tax return. Because the partnership’s decision to elect out of the audit regime will be subject to IRS review, partners should consider including opt-out provisions within the tax matters provisions of their partnership or LLC operating agreements.

In addition, every partnership subject to the BBA audit procedures will have a “partnership representative” for years beginning Jan. 1, 2018. A partnership representative has increased authority, as compared to the designation of the “tax matters partner” under the old regime. For instance, a partnership representative has the exclusive authority to represent a partnership during a tax audit and negotiate a settlement with the IRS.  

The IRS has the right to designate the partnership representative if the partnership fails to do so in advance. Accordingly, it is advisable to update the tax matters provisions of the partners’ agreement to include the necessary designation.

• RELATED: Read more articles from Alex Gertsburg by clicking here.

With the recent changes in tax laws effecting partnerships (including LLCs taxed as partnerships), business owners should consult with their tax advisors and legal counsel with respect to amending their partnership or LLC operating agreements.

[1] Single-member LLCs and LLCs that have elected to be taxed as S-Corporations are not impacted by this change.

This article is meant to be utilized as a general guideline for IRS rules for partnerships. Nothing in this blog is intended to create an attorney-client relationship or to provide legal advice on which you should rely without talking to your own retained attorney first.  If you have questions about your particular legal situation, you should contact a legal professional.

Alex and the attorneys of The Gertsburg Law Firm now offer Cover My Six, a one-stop legal audit for your business, led by award-winning litigators and in-house counsel. CM6 minimizes your exposure to lawsuits, investigations, disgruntled employees and customers, and all the damage that comes with them. Visit www.covermysix.com to learn more about how to protect your business from lawsuits with this brand-new service.

The Federal Reserve Board and the Federal Reserve Bank of Cleveland recently published “Browsing to Borrow: “Mom & Pop” Small Business Perspectives on Online Lenders.” The study follows the release of a 2015 report, Alternative Lending through the Eyes of “Mom & Pop” Small-Business Owners: Findings from Online Focus Groups.

The report aims to gauge small business owners’ perceptions of online lenders, as well as their understanding and interpretation of the information that online lenders use to describe their credit products.

There were three key takeaways from this study:

Takeaway No. 1: Many participants were familiar with online lending. Most were familiar with at least one or two lenders on a list of the more prominent firms. Some had positive views of online lenders, the bulk of participants had negative thoughts about the industry. These negative impressions appear to be based, in part, on sales calls from lenders or brokers and frequent email and mail solicitations.

Takeaway No. 2: Participants want to see websites with detailed product information: They want details about products and their costs, because the more info the better. When websites made you enter contact information before they provided information, users felt skeptical.

Takeaway No. 3: Participants found sample online products confusing. Participants were given three sample online products, and they found the descriptions difficult to understand because of the lack of details. When features such as interest rate, payment amount, fees, etc., were displayed in an orderly manner, participants were pleased.

Opportunity for online lenders?

Nearly all participants agreed in their want for clear disclosure of product costs and terms, and the findings suggest that improved disclosures could benefit both lenders and borrowers. This presents an opportunity for online lenders to earn customers’ trust and grow their customer base. Borrowers could evaluate competing products based not only on the costs and features offered, but also the degree to which the lender is up front about important details.

Click here to read the full report.