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35 Years of Client Growth and Success
On Wednesday, May 23rd, the Strothman and Company Family gathered to celebrate 35 fantastic years of consistent client growth and success. Thank you to everyone that joined us at the Gheen's Foundation Lodge and shared in the commemoration of this landmark achievement. We are proud to be part of such a fantastic business community and we are privileged to call each of you our colleagues and friends.
For anyone that wasn't able to attend the celebration, please click the video below to see the speeches given by our Senior Partnership group in this order: Bill Meyer, Joe Johnston, Dennis Thomas, Bill Carroll, Rowe Hamilton and Ray Strothman.
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35th Anniversary Celebration - Partner Speeches
Gheen's Foundation Lodge - Wednesday, May 23, 2018
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Interest Rates Are Rising - Are You Ready for the Storm?
The Federal Reserve raised interest rates a quarter point on June 13, 2018 with an indication of 2-3 more hikes in the next 6 months. As interest rates rise, the ability for businesses to borrow becomes constrained. As the 10-year treasury crosses 3% and heads north, we expect the lines of credit that businesses rely upon to become constricted, and ultimately reduced, when renewal time comes around. The key borrowing ratios that banks use to determine credit combine interest rate burden (the higher the rate the larger the payment) and expected cash flow of the business (receivables, future revenues) as well as profitability. With a challenging economy that has both rising costs and interest rates, one can expect credit to tighten.
Combine that with rising oil, its negative impact on the consumer and flow through to the cost of raw materials used in manufacturing and you have the making of a potentially ugly storm. Labor markets have also gotten very tight. All of these factors can lead to a perfect storm for businesses who rely on financing to manage cash flow. In this type of environment, operating efficiencies and proactive strategic planning become more critical than ever. Proper structuring of corporate risk and the balance sheet is paramount.
OK - enough doom and gloom. What do we do about it? At
Strothman Strategic Advisory Services, we work with our clients to control the things they can in order to navigate these types of uncertain waters. The things you can control are:
- Operating Efficiencies
- Cash Flow Management
- Overhead Expenses
- Capital Structure
- Corporate Cultural Divides
- Tax Strategy
- Corporate Structures and Controls
Business owners and executives need to pay attention to the underlying construct and dynamics of both their business and the marketplace within which they operate. We have worked with clients for over three decades to help them identify the issues within their control and make proper adjustments. Our clients can attest it almost always takes an outside expert to implement the proper solution set. Our process is straightforward:
- Clarify Corporate Goals, Mission, and Vision
- Inventory All Assets (Tangible and Intangible)
- Evaluate and Model All Financial Aspects
- Evaluate All Business Processes
- Incrementally Implement Solution Sets
- Introduce Alternative Capital Sources, where appropriate
- If appropriate, Merger, Acquisition and Exit strategies to Maximize Value
In this way, your business can continue to operate while incrementally improving performance to achieve the goals and objectives, while also becoming more competitive. Our clients know what they want - we know how to get them there.
Contact us today to discuss how we may be able to help you navigate the coming storm.
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Amazon's Alexa as a Virtual Office Assistant
Studies have shown that as much as 40 percent of time spent at work is generally unproductive, busy work. Things like checking emails, ordering supplies, fixing the copy machine or trying to figure out how to work a conference call line - during the conference call. These tasks can be aggravating and, when experienced by everyone in the firm, can have an impact on the bottom line.
To help companies manage small, day-to-day tasks, Amazon has launched Alexa for Business. Amazon Echo is a speaker; Echo Dot is a smaller speaker. Alexa is the name of the virtual assistant who you can converse with through the Echo speaker. Alexa boasts more than 25,000 skills - which are basically apps that you enable in order to access a particular service. For example, you can get an up-to-the-minute news brief from Reuters, request the stock price of a specific security, order a driver from Uber or Lyft, translate a word or sentence from another language, order supplies, compile a to-do list or initiate phone calls - all by simply asking Alexa.
Alexa for Business isn't just for individual use. A company can set up Alexa devices in common areas throughout the workplace for all employees to use.
Around the Office
Alexa for Business enables a firm to manage all of the Alexa devices from a centralized console connected to your Alexa for Business account. This is a time-saving feature so that the devices do not need to be managed individually.
This configuration enables all employees to utilize Alexa for various tasks, such as getting directions, finding an open meeting room, ordering supplies, reporting building problems or notifying IT of an equipment issue. Alexa also can be linked to internal computer networks to provide company-specific information, such as inventory levels or sales figures.
At Your Desk
For folks who work in an individual office, Alexa at your desk can help you manage your calendar, maintain a to-do list and set up reminders so that you don't miss a meeting or an appointment. By simply speaking in a normal voice, you can ask Alexa to make phone calls for you and dial into conference calls. You can set up skills for your specific device or incorporate, for example, the corporate calendar so that every device has access.
Employees can even use Alexa for Business skills with their home devices, which allows them to work from home. They also can access skills from their home device while at work.
In the Conference Room
Alexa for Business includes skills that make it easy to configure Alexa to control your conference room calls, audio and visual equipment, and any meeting applications. This allows anyone to get the meeting started by speaking to Alexa. For small conference rooms, an Alexa-enabled device can actually function as an audio conferencing vehicle; in larger conference rooms, Alexa can run the equipment so that participants can focus on the meeting - not the phone or presentation glitches.
In today's competitive business environment, the ability to maximize every staff member's productivity can be a key driver for success. Start by having a frank discussion with employees about what tasks drain their time and resources throughout today, then consider adopting Alexa for Business to help address those issues and give your entire firm an on-demand virtual assistant.
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Will Blockchain Technology Disrupt Audit and Assurance Services?
Blockchain technology is raising speculation over the future of audit and assurance work and the impact it could have on accountants. Originally created to serve as the foundation for cryptocurrencies, blockchain technology has developed and been adapted into many other spaces, including smart contracts. It has the power to disrupt the audit and assurance process and industry.
Specific to accounting, blockchain technology combines peer-to-peer networking technology and cryptography, which allows for a "triple-entry" ledger that can automatically record and confirm transactions in real time. Moreover, these records are distributed over the network and are extremely difficult to change after being recorded, leaving little room for fraud.
Without nearly as much work needed to analyze and verify records, there appears to be little work left for human auditors, providing a major disruption to the financial statement audit process. Blockchain is provoking anxiety for some CPAs who worry they might soon be out of a job, while others think it will change only the way CPAs work, allowing those who adapt to thrive.
Right now, blockchain technology is just a tool unto itself. Transactions recorded on a blockchain could still be unauthorized, fraudulent, or illegal. Other areas of concern that blockchain technology does not address are if transactions are executed between related parties, correctly classified in the financial statements, or linked to "off-chain" side agreements. In other words, blockchains can't differentiate and look for all the important things auditors tend to be most concerned about. As a result, the technology is not likely to replace people - but rather supplement the auditing process.
The impact of blockchain has already been felt by larger CPA firms with clients who are implementing the technology into their enterprise resource planning (ERP) systems. One of the biggest business areas impacted is procurement and supplier management, in which blockchain enables transparency for every transaction. This decreases the auditors' work of sampling and testing transactions. Instead, it allows them more time to focus on services such as assessing and testing internal controls and investigating discrepancies.
Blockchain technology also will allow auditors to restructure the auditing process, creating wider adoption of more real-time, continuous audit testing - which will eliminate the time-consuming and labor-intensive processes of preparing and manually testing data. Essentially, the biggest risk is to entry level and junior auditors' jobs.
Similar to other industries, this creates a conundrum for how to groom future talent. As the bulk of entry and low level roles are increasingly automated and begin to disappear, where will budding auditors learn their trade? Accountants learn as much from job experience as formal schooling, so without the experience provided by the grunt work performed during the early years, there will be a skills and experience gap.
Aside from the talent issue, another challenge with adapting to blockchain is not only that it is new (less than 10 years old), but that it is perplexing due to its differentiation and complexity. CPA firms are looking for ways to adapt and even prosper as a result of emergent blockchain technology, focusing on expanding their assurance services to areas such as cybersecurity and sustainability.
The goal for firms is to avoid waiting until the inevitable arrives. Understanding and adapting to the role of blockchain technology now will make the change more of a transformation and less of a disruption. Finance professionals need to educate and position themselves during the run-up so that they can take advantage of the opportunities that will become available to those who have the right mindset, skills, and tools.
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Common Money Mistakes As We Age
It is common knowledge that as we grow old, our bodies tend to not work as well. Some folks begin having physical challenges, some have cognitive issues and some have both. But what we don't know is which, if any, of those challenges we will face. Worse yet, those who fall into cognitive decline often do not have the ability to recognize it.
The lesson here is to prepare for the unknown. If you've worked with financial advisors throughout your career, it's a good idea to narrow your resources to one or two trusted people - possibly including a family member. That way, if and when you need help managing your finances, you'll have a loved one who can help recognize when it's time for you to relinquish managing the reins - and an expert to help take over.
The following are some common areas in which seniors make mistakes that could impact their future financial security.
Draw Social Security Too Early
Many of today's current retirees started drawing Social Security at the earliest possible age of 62. This might have been due to a layoff, health issues or simply because they retired and needed to turn on the income stream. However, the earlier you start drawing benefits, the lower the payout - and this payout level is locked in for life (with the exception of periodic cost-of-living adjustments). It also locks in the amount a surviving spouse - whose benefit is derived from your earnings - will receive when you pass away. Waiting as long as you again before starting Social Security allows your benefits to accrue higher.
Spend Assets Too Soon
Once you retire, it's important to create a household budget for regular and ad hoc expenses each year. Then, subtract the amount of Social Security and any pension benefits you (and your spouse) will receive to estimate how much you'll need to withdraw from your savings and investments each year. One of the most common mistakes is withdrawing too much of these assets early on in retirement and then running out of funds.
Forgo RMDs
When you turn age 70½, you will need to begin making Required Minimum Distributions (RMDs) on all tax-deferred 401k and IRA accounts, even if you don't need the money. Each year your brokerage will send you a notice indicating the withdrawal amount. You'll need to make that withdrawal before the end of the calendar year and pay any taxes due on your return for that year. Any RMDs you do not withdraw will be subject to a 50 percent penalty. Remembering to take RMDs as a young retiree might be easy, but you should have a plan for someone to continue making these withdrawals on your behalf should you forget to in old age.
Cancel Life Insurance
Many couples stop paying for life insurance once their children are grown. However, consider how much your household income would be impacted should one of you die first. Would the elimination of a regular pension and/or Social Security benefit check impact your loved ones' lifestyle or financial security? Consider purchasing life insurance for one or both spouses to help ensure that there is enough money for the survivor's lifetime.
Chat With Strangers
Elder financial fraud is big business. Each year, $37 billion is fraudulently taken from seniors - often willingly given. Because many seniors live alone, they are more susceptible to chatting on the phone with a friendly caller, who use this to their advantage. It's a good idea to never respond to phone calls you receive from marketers or unsolicited offers from unfamiliar companies.
Keep Information in Different Places
The wider the range of your savings and investment accounts, the harder it is to look after them when you get older. Consider consolidating accounts into as few as possible, such as combining checking and savings accounts into a single bank and transfer investments to one investment firm.
Pay Bills By Hand
Stop paying your bills every month; have your bank pay them automatically. Enter all regular payors and authorize your bank to pay them from your bank account automatically. Also, get some help monitoring this process. As you get older, you'll want someone helping sort through your mail on a regular basis to address periodic bills like homeowner's insurance and your property tax bill.
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Notes from the 2018 Berkshire Shareholders Meeting
The Annual Berkshire Hathaway Shareholders' Meeting is something of a legend in the investment world. More than just an informational annual meeting, shareholders come from far and wide to listen to the musings of the Oracle of Omaha, Warren Buffett, and his partner, Charlie Munger. During the 2018 meeting, both Buffett and Munger discussed their investment philosophies and opined on a number of economic issues and trends they foresaw as influencing the future for investors.
The Power of Long-Term Buy and Hold
The meeting kicked off with Buffett discussing his strong conviction in his time-tested investment philosophy. When he made his first stock purchase in 1942, Buffett bought a few shares of a company called Cities Service. The stock declined by about a third before coming back; somewhat shaken by volatility, he exited his position for a small profit. Buffett's initial investment in Cities Service was $114. If instead of selling due to his fear of volatility he had held onto the stock, it would be worth about $400,000 today.
"When there's nothing to do, Warren is very good at doing nothing," said Munger, exemplifying the power of the long-term buy and hold strategy as the key to Berkshire Hathaway's success. The lessons of long-term buy and hold are neither exciting nor sexy and are often forgotten during large market moves over the course of a year.
A decade after the Great Recession, with unemployment below four percent and the Fed hiking interest rates, investors are starting to feel uneasy about the market cooling off and may be tempted to react to sell-offs. When a correction comes, these are exactly the times that Buffett and Munger say one should hold the course and be prepared to find value in the market for new long-term buy and hold positions.
Finishing off with a discussion on the power of compounding, Buffett predicted that the Dow would reach one million over the next 100 years. As big and bold as this might seem, it's actually pretty conservative once you realize that the Dow Jones would only need to grow at 4 percent annually to reach this level; approximately half the historic rate of return over the past 100 years.
Cryptocurrency and Other "Trends"
Buffett and Munger warned of being seduced into hot new investments like cryptocurrencies at the expense of investing in stocks for the long run. Their concern is not about cryptocurrencies in particular, but that it is a non-productive asset. Non-productive assets don't actually create any value or wealth, but rise based only on perceived scarcity.
They warned of the greater fool theory, that anytime you buy a non-productive asset, you are counting on someone else to buy the exact same holding for more money later. They ended the discussion by observing that "cryptocurrencies will come to bad endings."
U.S. Healthcare
Buffett expressed strong views on the U.S. healthcare system. He believes spending is a problem, noting that approximately 18 percent of U.S. GDP is spent on medical costs, a growth of five percent over the 1970s. In response, Berkshire Hathaway formed a partnership with Amazon and JP Morgan designed to assist employees by lowering healthcare costs for similar services. He foresees significant resistance to broad adoption of such plans by the healthcare industry as it threatens their entranced position.
Munger went a step further and noted he thinks a single-payer medical system will eventually be adopted in the U.S. in response to rising costs.
U.S. Trade Policy
Exports have doubled since the 1970s, making up about 11 percent of GDP versus about five percent back then. Despite this increase, imports have increased as well, accounting for 14 percent of GDP today - creating a trade gap of three percent.
Buffett is concerned about this trade gap widening over the long term, as eventually we will have to pay for it.
Take Away
The main theme of the annual meeting was centered on Buffett and Munger's time tested long-term buy and hold theme. While they touched on a number of other issues, the time they devoted to this illustrates their belief in its importance relative to other matters.
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Congress at Work:
Dodd-Frank Rollback, Security Clearance Assistance, and Returning Assets from the Nazis
The Congress at Work series of articles is designed to give you a glimpse of various types of legislation currently under consideration. While either the Senate or the House of Representatives may initiate a bill proposal, be aware that many bills never become law; they may never make it out of committee, be blocked by a Senate filibuster, delayed, lack enough votes, never be agreed upon by the two houses, or vetoed by the president.
Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155)
- Sponsored by Sen. Michael Crapo (R-ID) in November 2017, this bill rolls back some of the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The original bill was designed to tighten regulations on financial institutions following the Great Recession of 2008-2009. This bill contains several provisions, including the following:
- Exempts banks with between $50 billion and $250 billion in assets from some of the restrictions regulated by the Financial Stability Oversight Council.
- Exempts banks with less than $10 billion in assets from some rules entirely, such as the Volcker Rule that bans banks from making certain speculative trades.
- Requires the Federal Reserve to take the size of banks into account when crafting regulations, rather than issuing one-size-fits-all regulations.
The bill was signed into law by the President on May 23.
SECRET Act of 2018 (H.R. 3210)
- Introduced by Rep. Steve Knight (R-CA) in July 2017, this bill requires the Director of the National Background Investigations Bureau to submit a report on the backlog of personnel security clearance investigations. The report must detail how many investigations are backlogged and the average length of time it would take to conduct initial and periodic investigations. This report also must state what the process is for conducting investigations and making security clearance judgements for personnel of the Executive Office of the President. In addition, the report should estimate how much it would cost to provide duplicate resources to carry out investigations. The bill was signed into law by the President on May 22.
Justice for Uncompensated Survivors Today (JUST) Act of 2017 (S. 447) -
Sponsored by Sen. Tammy Baldwin (D-WI), this bill authorizes the State Department to report on the progress of European nations returning or paying restitution for stolen property or assets from Holocaust victims in the 1930s and 1940s. The purpose of the bill is to encourage the return of lost money, assets and property taken by Hitler and the Nazis through public accountability. The bill was introduced in February 2017 and signed into law by the President on May 9.
Trickett Wendler, Frank Mongiello, Jordan McLinn and Matthew Bellina Right to Try Act of 2017 (S. 204) -
This bill amends the Federal Food, Drug and Cosmetic Act to allow a terminally ill patient - who has exhausted approved treatment options and is unable to participate in a clinical trial - to use unapproved, experimental drugs and medical products. The manufacturers or sponsors of such products that have been issued as a result of this legislation must submit an annual report detailing this type of usage to the Food and Drug Administration. In turn, the FDA will post a summary report on its website. This legislation was introduced by Sen. Ron Johnson (R-WI) in January 2017. It has passed in both houses of Congress and is awaiting signature by the President.
Childhood Cancer Survivorship, Treatment, Access and Research (STAR) Act of 2017 (S. 292)
- This new legislation amends the Public Health Service Act to authorize the National Institutes of Health to provide support for compiling medical specimens and information on children, adolescents and young adults with specific cancers that have the least effective treatments. Grants will be awarded to state cancer registries to improve tracking of childhood cancers and support pilot programs to develop or study models for monitoring and caring for childhood cancer survivors, among other provisions. The bill was sponsored by Sen. Jack Reed (D-RI) in February 2017, passed in Congress on May 22 and is currently with the President.
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