3 Simple rules for managing your cash flow

I have three rules for managing cash flow: Collect sales as early as possible. Pay bills as late as possible. Plan carefully. Rule 1: Collect sales as early as possible. E-commerce companies typically collect payment before providiing services.  For example, online subscriptions typically collect payment before the customer can access the product.  As long as […]
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How much is your self-employment tax?

Self-employment tax can eat up a huge chunk of your income (up to 13.3%).  Here is how to calculate self-employment tax for a self-employed individual operating as a sole proprietorship. The two components of self-employment tax are social security tax and medicare tax: In 2012, Social security tax is 10.4% of the first $106,800 in […]
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Most new businesses fail

Unfortunately, most new businesses fail. Inevitably, the product isn’t quite what the customer is looking for, or the price is too low to make a profit, or the price is too high, or supplies are limited, or an ex runs away with the cash box, or the rent becomes unaffordable, a competitor learns how to do […]
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Deducting interest on your home mortgage

John Brown’s Farmhouse by Tony the Misfit, on Flickr Interest on your home mortgage is deductible from your taxes if you file Schedule A (i.e. you itemize deductions).  The mortgage must be secured by your home or your second home. Mortgage interest paid to individuals (such as a relative) are also tax deductible. Home equity […]
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What are audited financial statements and why?

Suppose that your child got to write their own report card. At the end of the semester, the child figures out their grades, writes them down, and then mails them to their parents.  How would the parent know that the grades were free of bias or error? Such is the issue with financial statements.  Reported […]
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Be an accountant

It’s not difficult to become an accountant. In my 15 years as an accounting professor, I’ve had the good fortune to help prepare thousands students for the accounting profession.  Many of them probably never considered accounting until they started to study it. Careers in accounting provide tremendous job satisfaction, high salaries, and comfortable job security. […]
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PE ratio: Is that stock overpriced?

Previously I wrote about the common misperception that a high-priced stock is “expensive,” while a low-priced stock is “cheap.”  I said that stock price doesn’t matter. This raises the inevitable question: Q. How can you tell if a stock is expensive or cheap? A. Use the Price-Earnings Ratio (aka the “PE Ratio”) The PE ratio […]
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Stock price does not matter

That’s right. The fact remains: Stock price does not matter. Huh? Many people think that the higher a stock price, the more “expensive” a stock.  The lower the stock price, the “cheaper” a stock.  Right now, as I write this (on April 19, 2012), Apple stock is trading at $595.55 a share.  Google is at […]
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Transparency

Accountants like to talk about transparency, the principle that financial statements should give a clear and accurate portrait of a company’s performance. Accounting is important because you need a transparent view of your business’s performance.  What are your sales?  Your expenses?  How profitable is your company?  What assets do you own?  How much cash do […]
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Finding a good accountant

Finding someone you can trust. Studies show that accountants are often a business person’s most trusted advisor. Your accountant will have access to your most personal financial information.  Be careful. This is where the Certified Public Accountant can help.  The highly-respected CPA credential indicates that the holder has passed the challenging CPA exam and is licensed in […]
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