CROW, SHIELDS & BAILEY, PC

VOLUME 2 ISSUE 6

Spring 2001

The Coaches Convert to Consulting

It's no surprise to me that several members of our firm also involve themselves in coaching. "What do accounting and coaching have in common?" you ask. Good question. The two professions certainly don't look very similar on the surface. But let's take a closer look.

Many of our firm members grew up participating in sports. Sports is a terrific medium to teach many of life's lessons. Participation in athletic competition teaches us the rewards of discipline and hard work, as well as how to deal with losing and other adversity. And perhaps most importantly, it teaches us how to be a team player.

The crucial quality of a good coach is the ability to teach. Of course there are other important characteristics, such as organizational skills, the ability to motivate others, and the willingness to learn and try new things. But the most important skill, in my opinion, is how well the coach can teach his player to perform a task. Simply put, a great coach must be an outstanding teacher.

Some of our firm members involved in coaching are Joey Bailey, Trey Mayhall, Lindsey Stuardi, Danny Rickert and me. All of us have given of our time to teach basketball, football, baseball, volleyball and soccer to kids of all ages. We coach because we love seeing the smiles on the faces of our "students" when they succeed.

Okay, so much for the coaching. What's the point?

Business Consulting - that's the point!

Consulting is a natural for us. Through the years we've gained a wealth of experience working with successful businesses. We've seen what makes them succeed. And we've witnessed too many times what makes others fail. So combine this experience with our love of coaching, and presto - we've got the tools to help your business not only succeed, but "really fly".

Too many successful business owners are trapped. Maybe you're one of them. Your business has grown rapidly because you're good at what you do. You deal with irate customers, pacify disgruntled employees, worry about paying the bills and making payroll, keep the books, make sales calls ... and so on ... you know the drill. You are the business. And you're working 70 to 80 hours a week because of it. The freedom you dreamed of when you started out has vanished.

And therein lies the problem. Most business owners know how to work "IN" their business. But very few have ever learned (or been taught) how to work "ON" it. Here's where we can help!

We start by analyzing your financial data. Next, you are shown the potential profitability of your business by looking at the impact of changing any of "the four things that make any business grow." There is no charge for these two steps. This is simply a preliminary assessment to determine if you want to go forward. And what if your answer is yes? Well that's when all the fun begins!

In a typical business consulting engagement, we are involved with you in:

• Setting up "systems" for all aspects of your business, so that everyone knows that "this is how we do it here"
• Listening to your customers to find out what they like or don't like about doing business with you, including conducting a Customer Advisory Board (a "CAB")
• Analyzing which customers and types of work are most profitable, and helping you focus on that work. (Can you believe some businesses continue to deal with customers that they lose money on?)
• Teaching your employees how to deal with customers, including conducting our very popular "phone right" video program
• Helping you set up Key Performance Indicators ("KPIs") to help you monitor all areas of your business, to see what is and isn't working (After all, you can't manage what you don't measure - can you? E.g., How many inquires do you get from your "yellow pages" ad? How many of these do you convert to customers? Where does most of your business come from anyway?)
• Throughout the entire process, we'll serve as your external disciplinarian (the coach) to see that you're keeping on track

So you see, it's true. The coaches have become consultants. We promise to help make work something you look forward to each day - again. Call us today for a free initial consultation. Our coaching can work for you - we guarantee it.

Signed,
Overworked, Overtaxed, Overwrought, Overdue, and Out-of-Patience Taxpayer

Dear Over, I feel your pain. However, as a tax professional as well as taxpayer, I must confess to mixed emotions on this tax issue. Yes, I'm for simplification. But if it gets too simple, what's a tax accountant to do?

Congress just passed the Economic Growth and Tax Relief Reconciliation Act of 2001, and President Bush has probably signed it by the time you read this.

Simplification it ain't, so forget about the postcard. Tax cut it is - but the cuts are not immediate. They phase in over several years, and some won't be fully effective for another nine years. I'm not going to give you all the details right now - we'll save that for a later issue. For now, let me give you a very few of the highlights.

Refunds this year:

Individual taxpayers will receive a refund up to $300 this year. Single parents will get up to $500 and married couples up to $600. The Treasury Department will mail most checks during August and September.

Income tax rate cuts:

A new 10-percent tax rate is imposed, retroactive to January 1, 2001. The rate applies to the first $6000 of taxable income for single people, $12,000 for married couples filing jointly. All the other income tax rates are gradually reduced over the next five years, starting with a one-percentage point cut which takes effect on July 1. The top rate will fall from 39.6 percent to 35 percent by 2006. Taxpayers should start seeing some increase in take-home pay in July.

Child credit:

The child tax credit, which benefits taxpayers with children under age 17, will rise from $500 to $600 effective for this tax year. It will then increase to $700 in 2005, $800 in 2009 and $1000 in 2010.

Estate tax phase out:

The estate tax will be repealed by 2010. Exemptions to the estate tax will increase before then!

Easing of the marriage penalty:

The 15 percent bracket is widened so that more of married couples' earnings are taxed at a lower rate.

IRA, 401-K expansion:

Contribution limits for IRAs will gradually rise from $2,000 to $5,000. For 401(k) plans, contribution limits will rise from $10,500 to $15,000.

Tax Man is annoyed at having postponed his canoe trip to Chandaleur Island. And why? Well just as he was putting the finishing touches on his canoe, he got a message from Washington that the President sought his expert counsel on the new tax bill. And even Tax Man, a burned out CPA enjoying his "virtual accountant" life as a castaway on Petis Bois Island, could not resist the chance to become a part of history. Little did he know what was in store for him in D.C. To shorten the story, suffice it to say that none of Tax Man's suggestions made the final tax bill: immediate repeal of the estate tax, lower capital gains taxes, repeal of the alternative minimum tax, repeal of all "phaseouts," renewal of income averaging, and retroactive reduction of all tax rates to name a few. So the entire trip could be considered a waste, were it not for his visit to the National Zoo and the National Art Gallery, where he got to marvel at the giant Panda and Renoir's painting "Chrysanthemums," respectively. Anyway, for now it's back to the Island and the continuation of plans to head south to Chandaleur.

Estimated Tax Savings for 2001 Under Tax Relief Reconciliation Act of 2001
Taxable Income	Married Filing Joint No Dependents	Married Filing Joint 2 Children Under 17	Single No Dependents
$25,000	$600	$800	$300
50,000	624	824	415
100,000	874	1,074	665
150,000	1,124	1,324	915
200,000	1,374	1,574	1,165
250,000	1,624	1,824	1,415
300,000	1,874	2,074	1,665
400,000	2,374	2,574	2,165
500,000	2,874	3,074	2,665
600,000	3,374	3,574	3,165
700,000	3,874	4,074	3,665
Tax savings amounts include rebate checks of $600 for married filing jointly and $300 for single taxpayers, to be received in 2001.

Tax Relief Savings Calculator
To find your own amount of tax savings, visit our website at www.csbcpa.com. Click on links, then click on 2001 Tax Relief Savings Calculator.

Auto Glass and Paint Supply became a client of Crow, Shields & Bailey three years ago. During this time they have utilized many of the services that we have available, including: bookkeeping, tax preparation, QuickBooks consulting, business consulting, and financial services through First Financial Group of Mobile. When asked why he chose to use the services of Crow, Shields & Bailey, Tommy explained, "They were willing to learn our business and they will be able to help us take this company to the next level.”

Tommy English attributes the success of Auto Glass to hard work, outstanding service, knowing the automotive refinishing business, and his team members. Within the next five years the plan is to double their business. We expect to be there, helping them to reach their goal.

Eric Dayton is a member of the Battleship Rugby Club which won the Division III National Rugby Championship on June 3. Eric has been a member for 10 years and has also played on the Deep South Allstar team, the Combined Services Allstar team (military) and the Eastern United States Allstar team.

Barb Frerman's oldest son, Joshua Michael Frerman and Kathryn Blaize Scafide exchanged wedding vows June 2 at Our Lady of the Gulf Catholic Church in Bay St. Louis, MS. They departed for a honeymoon trip to Aruba on June 3 and will reside in Atlanta, GA.

Deborah Smith is the proud grandmother of Zachary Andrew Crutchfield. Zachary was born on March 30 at 3:06 p.m., weighing 7 lbs. and 8 oz. His parents, Todd and Nancy and big brother William are all doing fine.

Lindsey Stuardi completed her MBA in May and began full-time employment with the firm on May 14. She has worked part-time with us since June 2000.

Jill Shinault traveled to Cuba on May 29 - June 4 with Society Mobile-La Habana. Jill serves as Secretary of this organization and her husband Robert Schaefer is the President. This trip was a medical exchange, with the purpose of allowing some Mobile-area physicians to learn about the Cuban medical system first hand. The Mobile physicians met with the national Minister of Health, the city's Director of Public Health, and toured a psychiatric hospital and trauma center. Additionally, they toured the Latin American School of Medicine and met one-on-one with individual physicians in hopes of creating personal relationships with their Cuban counterparts.

John R. Shields was recently appointed to serve on the Board of Directors for Wilmer Hall Children's Home.

Laura Shields, daughter of John and Therese Shields graduated from UMS-Wright Preparatory School on May 24th. Laura plans to attend the University of the South in Sewanee this fall.

Adam Alford graduated from Mary G. Montgomery High School on May 10th. Adam will continue his education through the Army Reserves. He leaves for Ft. Knox, KY in July to complete basic training, then on to Ft. Sam Houston, TX where he will begin skill training as a medic. Adam is the son of Stan and Kathy Alford.

Louise Crow, daughter of Kenny and Marty Crow graduated from St. Ignatius Catholic School on May 29th. Louise will attend McGill-Toolen Catholic High School in the fall.

Three basic but useful types of financial ratios are liquidity ratios, activity ratios and profitability ratios.

Liquidity ratios measure a company's ability to meet its short-term cash flow needs. The simplest liquidity ratio is the current ratio:

Current ratio = current assets/current liabilities

Current assets are those assets that you expect to convert to cash within one year. Generally, they include cash, accounts receivable, inventory and prepaid expenses. Conversely, current liabilities represent outflows of cash you will make within one year. Accounts payable and the current portion of long-term debt fall into this category.

There is no universal current ratio target number. Generally, of course, the higher the better. A current ratio of less than1 may indicate the inability to meet short-term obligations while a ratio of 4 or more might mean you have too much tied up in short-term assets. A healthy current ratio varies across industries, with business size and with economic climate. Any company, however, can benefit from tracking its own current ratio over time.

Activity ratios measure how effectively you employ your business assets. The inventory turnover ratio, for example, is expressed as:

Inventory turnover ratio = gross sales/average inventory

Average inventory is simply the sum of the cost of your inventory at the beginning of the period and at the end of the period divided by two. The higher the turnover, the more often you are converting inventory into sales and, presumably, cash.

You can obtain your receivables turnover ratio and fixed asset turnover ratio by substituting average accounts receivable and average fixed assets, respectively, for average inventory in the above equation. The results are interpreted similarly.

Profitability ratios allow you to evaluate your operating results in terms of gross sales and in terms of your investment in the business. From a sales perspective:

Net profit margin = net income / sales
Net operating margin = operating income / sales

Net income is your earnings after all income, expenses, gains, losses and taxes have been deducted - the bottom line. Operating income is earnings before interest, taxes, gains, losses and miscellaneous income and expenses. It is important to distinguish between the two because if non-operating items like interest expense or gains on sales of equipment are significant, they can make your bottom line look worse (or better) than the results of your normal business.

Like other ratios, profitability margins vary for many reasons. A grocery chain, operating in an industry with historically very low margins, might be delighted with a net profit margin of 2% while a doctor or other professional might suffer his worst year ever with a 20% net profit margin.

From a return on investment standpoint:

Return on assets = net income/total assets
Return on equity = net income/equity

By looking at your net income as a percentage of total assets or total ownership, you can compare your business' performance to any other type investment.

These ratios are useful for summarizing historical performance, predicting future performance and setting performance goals. By examining your business, you can develop ratios to track the factors critical to your success.

Our Business Development Team, headed by Danny Rickert, uses ratio analysis and other techniques to help you analyze your business. Together we can develop a strategy to bring your business to where you want it. Call Danny to find out more.

529 College Funding Plans

The greatest financial worry of most American Families used to be, "Will I have enough to live on after retirement?" Some public opinion polls, however, indicate this has changed. Now, the greatest area of financial concern is, "How will I be able to afford a college education for my children?" Thus, we have the States' 529 College Savings Plans, a tax-favored college funding vehicle.

To use these plans, you open an account that is essentially a trust for the child (the beneficiary). Any money placed in these plans is considered a gift, so the client must abide by gift tax rules. Each parent (or anyone else in a generous mood) may give $10,000 a year on behalf of a child without paying gift taxes. There is also a special provision in the gift tax rules for these plans. Any person can donate up to $50,000 to a child's plan in one year ($100,000 per couple) and spread if out over five years for gift tax purposes. Finally, if all of the money in the account is not spent, it can be rolled over to another child in the family, or simply left in the account intact and a new beneficiary designated.

Perhaps the best feature of 529 plans is that all investment earnings are exempt from Federal and possibly state taxes as long as they are used for college tuition, fees, room, board and other expenses. Depending on your tax bracket and how the money is invested, you could end up with significantly more cash, even if state taxes are paid, when the money is withdrawn.

Each state develops and names its own program. The main differences among the plans typically center on state income tax benefits, cost and fees, and state investment objectives. Most plans have open residency requirements, which means savers can comparison shop to find the best plan. With growing competition among the states for Section 529 dollars, many states provide special tax benefits to in-state residents. Investing in a plan outside of the home state might deny the client of the opportunity to take state tax deductions for their Section 529 contributions and/or a chance to either avoid or defer taxes on plan earnings.

Changing Circumstances

What if your son decides not to go to college, or your daughter wins a full scholarship? The money invested in their Section 529 Plans can be transferred to another college-bound relative without penalty. If there are not other siblings, the client can always cash out the money. The money belongs to the donor. The earnings portion of the refund is taxed at the parent's or grandparent's rate. In addition, they will be required to pay a penalty, typically amounting to about 10 percent of earnings, if the withdrawal was not as a result of the beneficiary’s receipt of a scholarship, death or disability.

For more information on these plans, contact Trey Mayhall.