As a small business, once you decide to extend credit to a customer, you now have a financial stake in continuing that relationship even if you suspect there might be trouble brewing. While you don’t want to crack down on a good customer too hard, too soon, you also don’t want to be taken advantage of by a customer who has become unable or unwilling to pay. Here are some ideas to help you manage this risk.

Develop a rating system. Score each customer with a number. The number represents to whom you will sell on credit and how much risk you are willing to take. Also have scores that represent customers you will not bill and those who you will no longer take orders from because of credit risk. Develop a system to objectively assign the score. Payment history and external credit scoring reports are both good indicators of whether a particular customer will be an acceptable credit risk.

Consider credit applications. Create a simple credit application. The application should be signed by the responsible party to pay the bill. If large credit amounts are expected, get a person to take personal responsibility to pay the bill. This will provide an additional means to collect your money should the company fail to pay. You will need this signed document if you wish to use a collection agency to collect delinquent accounts.

Look at history. Those to whom you provide a credit line must have their payment history monitored. If they are habitually late payers, reduce their credit line. If they frequently miss payments, move them to prepay only.

Create a notes section on your customer records. Use this to record what a late paying customer tells you. Over time, this will reveal the customers who are honest and the customers who fail that test. This idea also provides continuity of communication for the customer that tries to tell different employees different stories.

Develop a collection system. The best credit rating system starts with a receivable aging report run once a month. This will quickly show you current trouble customers and potential trouble customers. When a bill ages through the report, know what you are going to do to collect bills at 30 days, 60 days, 90 days and anything older than that.

Look for other signs of trouble. Train your team to be on alert for:

  • Customers paying smaller invoices while larger invoices go unpaid.
  • The customer fails to return your phone calls or shows annoyance at your inquiries.
  • Your requests for information, such as updated financial statements, are ignored.
  • The customer places multiple, large orders and presses you for a higher credit limit.
  • The customer tries to coax you into providing a good credit report to another supplier.
  • You get word that the customer’s credit rating has been downgraded.

Remember, great customers can have sincere problems paying a bill. By having a good credit rating system, you can more readily identify the customers you want to accommodate to pay their bills and those customers whose activity should be suspended because they are truly problem accounts.

Knowing your net worth and understanding how it is changing over time is one of the most important financial concepts that everyone needs to understand. This number is used by banks, mortgage companies, insurance companies and you! Your net worth impacts your credit score, which in turn impacts your interest rates and things as mundane as the amount you pay for auto insurance.

A simple definition

  • Net worth is the result of taking all the things you own (assets) minus what you owe others (debts and liabilities).
  • Assets include cash, bank account balances, investments, your home, vehicles or anything else that you could sell today for cash. Assets also include any businesses or business interests you own.
  • Liabilities are what you owe others, such as a mortgage or car loan, and any other debt, like credit card or student loan debt.

Your net worth changes over time, reflecting how you spend your money. For example, if you have tons of bills and spend more than you bring in, your bank account balances will be lower. If you spend a lot on your credit cards, your debt will go up. The net effect is a lower net worth.

Everyone has a net worth

Yes, everyone. Even a 6-year-old with money in their piggy bank has a net worth. If your child is saving up for a bike, they will convert one asset (cash) into another asset (their new bike)!

Calculating your net worth

  • Step one. Reconcile your bank accounts and loans. Try doing this every month, as these are the easiest parts of your net worth to track and calculate.
  • Step two. Calculate the value of all your remaining assets. For some of your assets, such as stocks, you can go online and find the current value of the stocks you own. For other assets, you’ll have to estimate what you could sell that asset for today.
  • Step three. Add up all your asset values, then subtract all your debts. What you’re left with is your net worth (and yes, your number could be negative)!

Why you should know your net worth

Knowing your net worth contributes to the big picture of your financial circumstances. Here’s why it’s beneficial to know your net worth:

  • You want to apply for student loans. You’ll likely need to submit an application that details all your cash and other assets when applying for student loans. If your net worth is high enough, you may have to foot some of the tuition bill yourself.
  • You want to get insurance. Some types of insurance use your credit score as part of the calculation for determining your premium payments. Knowing if you have a high net worth may help in obtaining a favorable premium amount.
  • You want to diversify your investments. Certain investments are available only to individuals who have a high enough net worth.
  • You want to buy a home. Banks want to see that you have plenty of cash when compared to your debts. If you have too much debt, you may need to either pay down the debt or increase your down payment.

Knowing your net worth and how to calculate it can help you achieve some of your financial goals. Please call if you’d like help calculating and understanding your net worth.

Ah, summer. The weather is warm, kids are out of school, and it’s time to think about tax saving opportunities! Here are five ways you can enjoy your normal summertime activities and save on taxes:

  1. Rent out your property tax-free. If you have a cabin, condo, or similar property, consider renting it out for two weeks. The rental income you receive on property rented for less than 15 days per year is not considered taxable income. In addition, you can still deduct your mortgage interest expense and property taxes in full as itemized deductions! Track the rental days closely — going over 14 days means all rent is taxable and rental income rules apply.
  2. Take a tax credit for summer childcare. For many working parents, the summer comes with the added challenge of finding care for their children. Thankfully, the Child and Dependent Care Credit can cover 20-35 percent of qualified childcare expenses for your children under the age of 13. Eligible types of care include day care, nanny fees and day camps (overnight camps and summer school do not qualify).
  3. Hire your kids. If you own a business, hire your kids. If you are a sole proprietor and your child is under age 18, you can pay them to work without withholding or paying Social Security and Medicare tax.
  4. Have a garage sale. In general, the money you make from a yard or garage sale is tax-free because you sell your goods for less than you originally paid for them. Once the sale is over, donate the remaining items to a qualified charity to get a potential charitable donation deduction. Just remember to keep a log of the items you donate and ask for a receipt.
  5. Start a Roth IRA for your children. Roth IRA contributions are limited to the amount of income your child earns, so earned income is key. This can include income from mowing lawns or selling lemonade. Start making contributions as soon as your child makes some money to take advantage of the tax-free earnings available in a Roth IRA.

Taking the time this summer to execute these tips can put extra money in your pocket right away and provide you tax-saving happiness in the future.

Be Proactive!

Earlier this year, hackers were able to breach the security of Equifax, one of the three national credit reporting agencies. More than 143 million Americans — nearly half the country — were exposed to the attack, and may have had their personal information stolen, including names, birthdates, and Social Security and driver’s license numbers.

Equifax is still determining exactly whose data has been exposed. While you wait to find out, it’s worth taking a few proactive steps to make sure your info isn’t misused by hackers.

Start checking. Visit Equifax’s website at www.equifaxsecurity2017.com and enter your last name and last six digits of your Social Security number. The site will tell you whether it’s likely or not your data has been exposed, and put you on a list to get more information. You can also sign up for a year’s worth of free credit monitoring.

Watch your statements. Start checking your credit card statements, and pay special attention to cards you don’t use often. The initial reports from the breach were that hackers may have been making charges on underused cards.

Check your credit reports. You can look for suspicious items on your reports, such as new accounts being opened in your name, at all three credit report agencies: Equifax, Experian and TransUnion. Free annual reports are available at www.annualcreditreport.com.

Freeze your credit. If you suspect you may become a victim of identity theft, you can place a credit freeze on your profile at each of the three credit reporting agencies. This stops new accounts from being opened in your name. Note that you’ll have to unfreeze your accounts if you want to apply for new loans or make your credit accessible for things such as job applications.

File your taxes early. One of the most common ways identity thieves use your information is to try to claim a tax refund with your data. This was the most common scam in 2016, according to the Better Business Bureau. If you file your tax return as early as possible, you shut down this opportunity for any would-be thieves.

It’s hard enough to watch your child leave for college. Now you also have to say goodbye to the tuition and fees tax deduction. Congress decided not to extend this $4,000 deduction for 2017, leaving many parents worried that college will now be more expensive.

But it isn’t as bad as it sounds. That’s because Congress left in place two popular education credits that often offer a more valuable tax break:

The AOTC. The American Opportunity Tax Credit (AOTC) is a credit of up to $2,500 per student per year for qualified undergraduate tuition, fees and course materials. The deduction phases out at higher income levels, and is eliminated altogether for married couples with a modified adjusted gross income of $180,000 ($90,000 for singles).

Lifetime Learning Credit. The Lifetime Learning Credit provides an annual credit of 20 percent on the first $10,000 of tuition and fees, for either undergraduate or graduate level classes. There is no lifetime limit on the credit, but only couples making less than $132,000 per year (or singles making $66,000) qualify. Unlike the AOTC, this deduction is per tax return, not per student.

So who is affected by the loss of the tuition and fees deduction? If you are paying for your student’s graduate-level courses and are making too much to qualify for the Lifetime Learning Credit, the tuition and fees deduction was generally the only means you had to reduce your tax bill.

But there’s still hope! In addition to the two alternative education credits, there are many other tax benefits that reduce the cost of education. There are breaks for employer-provided tuition assistance, deductions for student loan interest, tax-beneficial college savings options, and many other tax-planning alternatives.

Very few things in life can create a higher degree of stress and hassle than having your Social Security Number (SSN) stolen. This is because, unlike other forms of ID, the SSN is virtually permanent. While most instances of SSN theft are outside your control, there are some things that you can do to minimize the risk of this ever happening to you.

Never carry your card. Place your SSN card in a safe place. That place is never your wallet or purse. Only take the card with you when you need it.

Know who needs it. As identity theft becomes more of a problem, there are fewer who really need to know your Social Security Number. Here is that list.

  • The government.The federal and state governments use this number to keep track of your earnings for retirement benefits and to ensure you pay proper taxes.
  • Your employer.The SSN is used to keep track of your wages and withholdings. It also is used to prove citizenship and to contribute to your Social Security and Medicare accounts.
  • Certain financial institutions.Your SSN is used by various financial institutions to prove citizenship, open bank accounts, provide loans, establish other forms of credit, and report on your credit history.

Know who really does not need it. Many other vendors may ask for your Social Security Number, but having it is not an essential requirement. The most common requests come from health care providers and insurance companies. But the request for your number may come from anyone who wishes to collect an unpaid bill. When asked on a form for your number, leave it blank. Challenge the provider if it is requested.

Destroy and distort. Shred any documents that have your SSN listed. When providing copies of your tax return to anyone, distort or cover your SSN. Remember your SSN is printed on the top of each page of Form 1040. If the government requests your SSN on a check payment, only place the last four digits on the check. Prefill the first five digits with X’s.

Keep your scammer alert on high. Never give out your SSN over the phone or via e-mail. Do not even confirm your SSN to someone who happens to read it back to you on the phone. If this happens to you, file a police report and report the theft to the IRS and Federal Trade Commission.

Proactively check for use. Periodically check your credit reports for potential use of your SSN. If suspicious activity is found, have the credit agencies place a fraud alert on your account. Remember, everyone is entitled to a free credit report once a year. You can obtain yours at www.annualcreditreport.com.

Replacing a stolen SSN is not only hard to do, it can create problems. You will need to re-establish your credit history, reassign your SSN benefits history, and realign your tax records. Your best defense is to stop the theft before it happens.

When would you like to retire? Even if the answer is later versus sooner, most of us would like the freedom to decide. To do this, consider what it would take to create financial independence in retirement. Here are some ideas to help plan for an early retirement.

  • Start early – Establish your desire to retire early as soon as possible. Have a discussion with your spouse and loved ones to ensure you have the same retirement date goal. With this stated goal, meeting savings targets and establishing spending priorities get much easier.
  • Know what you want to do – Have you always wanted to visit national parks? Do you have a passion for art? If you have a dream that can be fulfilled in retirement, it makes any hardships to get there more tolerable. Once you set retirement goals, creating a plan to get there will have more meaning.
  • Pay yourself first – People who retire early have higher savings rates than most of us. Consider saving in excess of 10% of your earnings. To do this might mean holding off on a big vacation once in a while or delaying a major home improvement or purchase. While a hardship, knowing the long-term dividend makes it worthwhile. The larger your savings become, the more flexible you are in acquiring assets that generate more wealth for you.
  • No debt and credit cards paid in full – It’s hard to retire early if you are making large loan payments. Having a mindset to save money before you buy something versus taking out loans is the way to go for prospective early retirees. Why pay the credit card company interest when you could use that money during your non-working days?
  • Financial independence mindset – Save enough to not have to worry about Social Security or other government programs to take care of you. Said another way, never over-spend your own resources as you will need to depend on yourself and not others for your financial independence.
  • Use common sense when investing – Many investment alternatives may no longer make financial sense when compared to the income potential of the underlying asset or property. For example, if you own rental property, determine if the cash flows create a reasonable rate of return for the price you paid for the property. If you use common sense, more of your investments may help generate income in retirement.
  • Other resources – Go through a retirement planning process with a qualified expert. This exercise can help you understand what your projected financial needs will be during your retirement years. Project your potential savings. Look into other sources of projected income from pension plans and retirement savings accounts. Create an estimate of possible Social Security benefits. Understand what other resources will be available to you during retirement.

While this list is not meant to be all-inclusive, it should help start the conversation toward your early retirement dream. Remember to ask for help to understand your situation and to develop your own personal plan.

Most everyone knows you need to budget, balance and save. However, here’s a list of the ten steps to ensure you walk on stable financial ground.

  1. Set a budget and stick to it – Make financial goals and then create a budget that supports those goals. Account for expenses on a monthly basis and set budget limits for dinner out and other forms of entertainment.
  2. Pay off all debt (except a home mortgage) – Make debt payments a part of your budget until paid off.
  3. Set aside money for future expenses – Plan in advance for both short- and long-term big expenses and create a line item for them in your monthly budget.
  4. Save for emergencies – Set aside funds each month to build a reserve of three months living expenses (eventually build up to six) to guard against job loss or unexpected expenses. Having these savings automatically deducted you’re your income makes it easier.
  5. Take advantage of available plans – Company-sponsored 401(k) plans and/or other retirement plans, 529 savings plans and education funds will help you financially later. A little put away today can mean a lot is available tomorrow.
  6. Spend only what you have – Limit uses of credit vehicles like credit cards and high interest cash advances. Pay off credit cards by due dates each month.
  7. Manage your financial life – Regularly manage and monitor your accounts and statements, including balancing your debit/checking account and investment accounts.
  8. Keep an eye on your credit score – Making timely payments is one of the best ways to maintain good credit for future lending. If used responsibly, automatic payment systems like online banking can be beneficial.
  9. Set up Identity Theft Protection on your financial accounts – Regularly change your online and mobile passwords, and safeguard your financial statements.
  10. Openly communicate with your spouse about your family’s financial position – Make sure you both agree on short- and long-term goals. Teach your children the power of saving and budgeting to put them on the path to a successful financial future.

In the race to get our kids through high school and on to life beyond, I’ve seen a breakdown in the education system to explain basic financial skills.  Here’s the first half of a list of essential economic concepts that every high school student should understand.

How bank accounts work – Provide your child with a basic understanding of checking and savings accounts. Show them how to use checks and debit cards to pay for goods. Teach them how to access their accounts and reconcile their statements each month.

How credit cards work – Help your child understand that credit card spending actually creates a loan. Emphasize the importance of not carrying a balance by paying off credit card debt each month.

Tax basics – Prepare your child to anticipate taxes on not just purchases but on their wages as well.  Assist them to fill out their first W-4 and explain how it will affect their paycheck. When your child receives their first paycheck, walk them through their paystub to explain Social Security, Medicare, and federal and state tax withholdings.

The power of a retirement account – It might seem a little early for this, and it’s a hard concept for a young person to grasp, but explain to them the advantages of long-term savings tools like a Roth IRA.

How credit scores work – While no one but a credit reporting service actually understands all the aspects that go into creating a credit score, it’s still important to teach your child what can impact their credit and how that can affect their ability to get a car or house loan in the future. Everyone has access to a free credit report each year. Walk your child through their report.

Spending within your means – Save then spend.  This is a simple concept that is hard to accomplish. By teaching your child good habits early, you give your child a stable financial foundation for the future.

The art of saving – Part of spending within your means and saving go hand-in-hand. Teach your child healthy savings habits. Perhaps it’s setting up a separate savings account, setting aside a set amount each month or even a percentage of what they earn.

Look for the second part of this article next week!

For millions of working parents, the summer comes with the added challenge of finding care for their out-of-school children. With summer underway, you probably now have the childcare summer gap covered. There is a good chance this care is eligible for the Child & Dependent Care Credit.

Qualifications for the credit

To take advantage of this tax savings opportunity you must meet the following qualifications:

  • You have: one or more dependent children under the age of 13
  • You have: earned income (wages, salary, tips, or business income)
  • You have: qualified day care expenses
  • You are: financially supporting and maintain a home for your dependent child

What you should know

Taxpayers that use daycare to bridge the summer gap could be eligible for a tax credit if they qualify and organize now. To receive the credit:

  • The care must be provided so you can work – The care can also qualify if you are looking for work.
  • The care does not have to be at a facility – This means day camps, daycare, and nanny care qualify. However, overnight camps or summer school costs do not qualify.
  • If married, both spouses need to work – There is some leeway if one spouse is a full-time student or is disabled.
  • You need to keep records – You need to have receipts for the care expense and you will have to report the caregiver’s tax information (name, address, and tax ID/Social Security number) to receive the credit.
  • The care payment needs to qualify – You may not pay a dependent or your spouse to care for your children. But beyond this, who you pay is flexible.