IPCC: No One Is Immune From Effects of Climate Change

The Intergovernmental Panel on Climate Change (IPCC) has issued the 32-volume, 2,610-page report on the changing global climate. The report sounds a clear alarm that global climate change is accelerating and its consequences are having immediate impact on the world’s ecosystems. 

Scientists warn that steps must be taken to mitigate the social impact of climate change and prepare communities to adapt to shifting environmental conditions. 

This is the fifth report issued by the IPCC. The first report was published in 1990 with subsequent updates issued every 5 years. The report, prepared by teams of independent scientists noted two immediate consequences of global warming. Michael Oppenheimer, a lead scientist on the commission noted; “the first consequence is rising mortality rates due to heat waves. Last year over 35,000 people died as a result of prolonged heat waves. Another current impact of climate change is declining crop yields. The study reports that occurrences of declining crop yields dramatically rose while occurrences of increase yields steeply declined”.

Earlier reports of the IPCC advocated for the need to slow the rate of growth of carbon emissions with Cap and Trade market mechanisms. Failing to do so, the world would begin to experience the adverse effects of climate change by the close of this century. Subsequent reports indicated that evidence of climate change was growing and shortened the time frames when the impact of global warming would occur. The report released today indicates that the effects of global climate change are presently occurring and immediate action is required to mitigate the risks and adapt to the inevitable changes in the global environment.

Examples of the effects of climate change cited in the report are numerous. Persistent drought conditions in the Western United States, Australia and Sub Saharan regions and its effect on crop failures, agricultural yields, massive wildfires and water shortages. Accelerated glacial melt in the Himalayas, North America, the Polar Regions and Greenland and its impact on ocean currents, sea rise levels and massive mega storms that are growing in intensity and frequency. The thawing of permafrost soils near the Arctic Circle is releasing massive amounts of methane gas accelerating the greenhouse effect. Deforestation and clear cutting of old growth forests, and the burning of the Amazon and Indonesian flora biomass produce massive carbon emissions into the atmosphere. Paris, Beijing, Mexico City, Dallas Fort Worth and Singapore routinely experience poor air quality conditions due to excessive burning of fossil fuels. 

As the evidence of global climate change proliferates the divisive politics it engenders grows. Climate change deniers seem to represent industry segments tied to the use of fossil fuels. To solve the complex problem of global climate change the diverse interests of competing stakeholders must be moderated by leaders endowed with the political will to address this multifaceted social problem. 

Risk managers representing private industry, government agencies, community planners, disaster response and NGOs must fully engage the threats and opportunities presented by global climate change. Understanding the increasing velocity of this threat, its growing complexity and interconnectedness to other problems, its growing pervasiveness across regions and ecological topographies and how geophysical conditions aggregate multifaceted factors that compound the problem; make mitigation initiatives and adaptive strategies difficult to implement. Risk managers must transcend narrow parochial interests to engineer innovative solutions to these multidimensional social problems. 

Sum2 understands that humans cannot escape the geophysical conditions of our earth bound home. People and communities cannot escape the realities of geophysics. Citizens are called to engage the challenge of global climate change with courage, thought leadership and inspired innovation. 

Get risk aware with Macroeconomic Risk and Event App (MERA) on Google Play; a Mobile Office app that runs on MS Office and Android. MERA helps SME's assess emerging risk factors to mitigate and adapt to the challenges posed by global climate change.

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risk: IPCC, Report on Global Climate Change, agriculture, aquaculture, political stability, water rights, mega storms, greenhouse gases, wildfires, air pollution, smog, deforestation, regulatory, report, climate change

PwC's Risk in Review 2014

Pricewaterhouse Coopers (PwC) has published its annual Risk in Review survey. Nearly two thousand global corporate professionals representing a broad cross section of industries responded to provide insights into how their organizations meet the challenges of enterprise risk management.

The study was published against the backdrop of an emerging Eurozone recovery, US Sequester driven GDP decline, BRICS vacating the leadership role of global market drivers, the factory collapse in Bangladesh, the political turmoil of the implementation of the Affordable Care Act and Eric Snowden’s revelations of NSA privacy violations. 

The previous year survey reflected the perspective of corporate managers still smarting from the economic effects of the Great Recession and global credit crisis; by anointing financial distress and market uncertainty as the principal driver of corporate threats. This years survey cited technological change, IT risks, regulatory complexity and rapidly changing customer needs as the primary focus of corporate risk management programs.

The survey examined the intimate relation of external risk factors and how the organization has aligned its internal GRC processes to address both external and internal risk. The survey identified the ten most common risk management capability gaps. It also offered an evaluative framework to distinguish corporate risk leaders, early stage adopters and organizations beginning to develop a more formalized risk aware culture. 

The survey is an excellent examination of the components of a risk aware enterprise and a proposed framework to develop a risk aware culture within a commercial enterprise. The survey can be downloaded from the PwC website. 

In future posts we will examine some of the major points the survey raises to promote a more risk aware corporate culture.

Sum2 publishes a series of risk management apps for SME’s. Our leading product Credit|Redi provides a full complement of risk assessment tools to implement a risk aware corporate culture. Credit|Redi generates in-depth financial analysis reports that spot strengths and weaknesses in a company's financial condition. Credit|Redi also provides a series of enterprise assessment applications to monitor risk and determine opportunities for business growth to build a risk aware enterprise that wins the confidence of lenders and stakeholders.

Get Risk Aware on Google Play here. Get Credit|Redi

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Risk: GRC, PwC Risk in Review, SME, risk culture, ERM, IT, customer risk, capability gap, risk appetite, change management, stakeholder communication, regulatory risk 

SME World 2014: Transparency Gets the Loan

Though 90 per cent of Dubai registered companies are small and medium enterprises (SMEs), just 4% of all business loans goes to SMEs. In developed economies lending to SMEs goes well into the double digits. 

Vikas Thapar, CEO, SME Business, Emirates NBD, offered this observation during a panel discussion at SME World 2014 in Dubai. Mr. Thapar went on to explain that banks are reluctant to provide loans to SMEs because of regulatory compliance restrictions and the lack of transparency in SME business.

Questionable financial health and lack of transparency are two of the principal reasons small businesses get turned down for loans. Lenders need objective insights into a small businesses financial condition. Lenders also require a level of confidence in an SME's business plan to determine creditworthiness. Meeting these two conditions by lenders are critical steps to securing financing from lenders. 

SMEs improve their chances of getting the funds they need to finance growth by demonstrating creditworthiness. SME's accomplish this by providing lenders with an objective credit rating and financial health assessment report. Self generated Z Score reports are excellent measures of an SMEs creditworthiness. A Z Score credit rating combined with a well thought out business plan offers lenders the degree of transparency they require to close a loan with an SME.

Credit|Redi is a tool that demonstrates an SME's creditworthiness to lenders and capital providers. Credit|Redi generates a Z Score credit rating and in-depth financial analysis reports that spot strengths and weaknesses in a company's financial condition. Credit|Redi also provides a series of enterprise assessment applications to review problem areas and determine opportunities for business growth to build a bullet proof business plan that wins the confidence of lenders. 

If your business is looking for a loan or trying to raise capital:

Get Credit|Redi on Google Play here. Get Credit|Redi

Get Credit|Redi

risk; sme, credit redi, sme lending, credit risk, Z Score, credit rating, SME World 2014 Dubai, Vikas Thapar CEO SME Business Emirates NBD 

A Taxing Problem: Digital Assets and Global E-Commerce

The Independent reports that Ireland's Chartered Accountants are warning that "new OECD proposals on taxing hi-tech multinational companies will fundamentally change business landscape." 

The OECD has published a draft discussion on companies operating in the digital economy.  The question of determining tax liability for companies with a business model spanning multiple countries is a growing concern for national tax agencies. Outsourcing, offshoring, the use of tax havens and global e-commerce are perplexing tax authorities seeking to enforce outdated national tax codes written before the explosion of the global digital economy. 

The report proposed redefining when and where a company is liable for tax; suggesting a company would have a tax liability in a country where it had a "significant digital presence".

Ireland is particularly sensitive to this issue in wake of it's recent tax dispute with Apple and other multinationals with operations in the tax friendly EU nation.

Revenue recognition in a rapidly changing global economy with a growing preponderance of digital assets, intellectual capital and digital specie like Bitcoin raise important questions for corporate managers, tax authorities and regulators. Defining revenue, asset types and national jurisdictions of taxing authorities pose great challenges for tax professionals, corporate management, legislators and revenue agencies. Leveraging global disparities in national tax laws to arbitrage local tax codes is the mark of shrewd treasury management. It can also raise questions with tax agencies.

SME's involved in global digital e-commerce must become aware how the evolving tax code opens the door to tax controversy that rises audit risk factors from national revenue agencies.

Sum2 developed the IRS Audit Risk Program (IARP) to provide SME’s an audit risk assessment tool to keep the taxman away from the door. IARP outlines tax code focus areas where caution should be exercised when filing tax returns. Business owners can rest a bit more easy that audit risk is being effectively managed. Get Tax Audit Aware with IARP.

Get Tax Aware

Risk Bitcoin, CPA, digital assets, e-commerce, EU, global economy, IARP, income repatriation, Irish Independent, IRS, multinational, OECD, off-shoring, outsourcing, revenue recognition, risk: tax, sme

SME's Stand Their Ground to Close the Loan

Terrific piece on SME lending in yesterday's Irish Independent. 

More than half of all lending decisions appealed to the Credit Review Office by small and medium enterprises (SMEs) are overturned. This is a good lesson for SME's to be persistent in the face of rejection. SME's that can show confidence in their business prospects and demonstrate a creditworthiness can turn a negative decision into a green light. The key to this happy reversal of fortune is being able to provide evidence of creditworthiness and present a business plan that will use the loan capital wisely to produce profitable business growth. 

The Credit Review Office was set up to make sure that loan applications by SME's received fair consideration by lenders. The EU banking sector was severely effected by the global credit crisis. The EC "PIGS" (Portugal, Ireland, Greece and Spain) were especially hard hit. 

When the credit bubble popped, asset valuations dropped like a rock. The good fortune of SME's evaporated as the drivers of their prosperity,real estate, construction and service sectors crashed.

SME's were confronted with two immense business challenges. The first was creating a business that could adapt to a drastically changed business environment. The other was to convince lenders in a capital constrained economy that they were a good credit risk and that their business plan will generate sufficient returns to grow the business and pay off the loan.

Credit|Redi is a tool that demonstrates an SME's creditworthiness to lenders and capital providers. Credit|Redi generates a Z Score credit rating and in-depth financial analysis reports to spot strengths and weaknesses in the company's financial health. Credit|Redi also provides a series of enterprise assessment applications to review problem areas and determine opportunities for business growth to build a bullet proof business plan that wins the confidence of lenders. 

If your business has been turned down for a loan don't give up.

Get Credit|Redi on Google Play here. Get Credit|Redi

Get Credit|Redi

risk; sme, credit redi, EU, Credit Review Office, Irish Independent,  sme lending, credit risk, Z Score, credit rating,"PIGS", Portugal, Ireland, Greece, Spain, ECB, AIB

 

File an FBAR or Find Yourself Behind Bars

A few years ago the IRS offered a tax amnesty program for US citizens who failed to declare assets held in foreign bank accounts. This came on the heels of a highly publicized legal action against UBS. The IRS forced the Swiss based bank to turn over the account information of US citizens. The IRS was clamping down on tax evaders, exploiting the protection of Switzerland's bank secrecy laws to hide income and assets. The IRS was looking to determine if FBARs had been filed by the banks American clients.

Individuals and corporations with assets greater then $10,000 held in foreign bank accounts must file a Foreign Bank Account Report (FBAR) with the IRS or face potential legal action.

UBS counted 52,000 US citizens as private banking clients. It would be safe to assume that most of those accounts had balances greater then the $10,000 declaration threshold. 

Any US investor participating in a foreign based fund partnership or investment vehicle must also file an FBAR. High Net Worth (HNW) investors and their tax advisers should conduct due diligence on private bankers and asset managers to confirm that FBARs and appropriate declarations and forms have been filed by investment partnerships and their administrators. HNW tax advisers should contact the chief compliance officer at the fund to request an attestation letter stating that the fund is in full compliance with foreign bank reporting requirements.

Bernie Madoff and Sir Allen Stanford may look good in orange prison jumpsuits but that doesn't mean it will look good on you. Don't become a slave to fashion. Get compliant. Check with your tax adviser to make sure FBARs are filed.

Get compliant and file an FBAR with Sum2's AML SAR Filing BSA Reporting App. The app is used by financial institutions, compliance professionals and industry service providers to comply with Anti-Money Laundering (AML) best practice provisions and regulations. Protect your clients and your business from money laundering risk with this critical compliance application.

Since 2002,  Sum2's AML compliance products have helped investment managers, broker dealers, MSB's, banks and credit unions comply with the AML provisions of The Patriot Act, BSA Reporting and OECD best practices. 

Get AML aware. Download AML SAR Filing / BSA Reporting App on Google Play.

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Risk: AML, FBAR, legal, compliance, tax, reputation, criminal prosecution, IRS, OECD, Patriot Act, MSB, private banking, hedge funds, CPA, UBS, Credit Unions, SAR filing, BSA Reporting

Singapore Sling: Basel III Amps SME Credit Risk

SME lending just got more expensive in Singapore. Basel III capital requirements has increased the risk weighting on SME loans. Banks are now required to set aside more capital to protect against SME loan defaults. This will drive up the cost of capital for SME’s as lenders pass on added costs to borrowers to maintain healthy margins on SME loans; Singapore’s Business Times reports.

SME’s are a critical driver of economic growth in Singapore. Bank loans to the segment grew more than 10% in 2013. At DBS Bank, SME lending produced a $1.8 billion increase in revenue. 

The Government of Singapore has long been friendly to SME's and remains committed to support the segment as a keystone to the economic recovery of this vibrant Asian Tiger. The government has maintained a risk sharing program to guarantee 50% of an SME loan. Due to the increase in the loan loss reserves mandated by Basel III; the government will now increase its risk share to 70%. It is hoped that this will protect the the flow of capital to SME's.  

This regulatory initiative is another example of the compounding macroeconomic risk factors confronting SME’s. Shifts in credit market conditions and healthy functioning credit channels are major risk factors for SME’s. Acute macro risk, forces market players to compete for capital during restrictive business cycles. SME’s must assess macroeconomic risk factors surrounding the capital funding landscape to maintain profitability.

Get risk aware with Macroeconomic Risk and Event App (MERA) on Google Play; a Mobile Office app that runs on MS Office and Android. MERA helps SME's  assess emerging risk factors to profit from the opportunities shifting markets present.

Get Risk Aware

risk: sme lending, regulatory, credit risk, Basel III, Singapore, DBS Bank, OCBC, UOB, macroeconomic risk, Strait Times, Singapore Business Times, government spending

Anatomy of a Tax Audit

Its that time of year again.  April 15th looms ever larger as small businesses scramble to meet the IRS  tax filing deadline.  For many small businesses, tax filing is handled by a trusted accountant or business adviser. That tends to take the trauma out of this annual exercise in pain.  But even with the help of a tax professional the angst of the season is always a pressing concern.   

The enclosed infographic published by oBizMedia, displays some startling data about audit risk and its cost to small businesses.  For example in 2011 over 50,000 small businesses were audited by the IRS.   The IRS recovered over $30 billion in taxes as a result of auditing business returns.  A considerable sum of money that small businesses once counted as profits now paid to the tax man.  That can turn a good year of business into a not so good year.  

Its only natural that during times of economic adversity all business owners want to keep as much as they can.  During these times some business owners may be a bit more aggressive in its tax strategy to minimize tax liability.  It's a risk that unfortunately can come back to haunt SME's with additional tax liabilities, fines, penalties and costly litigation.

As the tax filing deadline approaches it is important to keep in mind the various audit risk factors certain deductions raise with the IRS. In the past the agency has published guidelines agents utilize to risk profile tax returns. Claiming these deductions heightens the risk of an audit by the IRS. It is a critical that SMEs are aware of these audit risk factors and incorporate this intelligence into its tax filing strategies. 

Sum2 developed the IRS Audit Risk Program (IARP) to provide SME’s an audit risk assessment tool to keep the taxman away from the door. IARP outlines tax code focus areas where caution should be exercised when filing tax returns. Business owners can rest a bit more easy that audit risk is being effectively managed.  Get Tax Audit Aware with IARP.

Get Tax Aware   

risk: tax code, tax audit, regulatory compliance, accounting, legal,

*Be sure to consult with your tax adviser for guidance on tax strategy and audit sensitivities specific to your business,  

SME Capital Formation: Money to Main Street

Dun & Bradstreet has initiated a timely capital formation initiative for small businesses. Access to Capital - Money to Main Street is an event tour that will bring together regional providers of funding for small businesses and start-ups.  

Economic recovery is combining with technology to energize innovations in small business funding options. Money to Main Street looks to promote the numerous funding options that are open to small businesses. Crowd-funding, micro-lending, asset financing, leasing, community bank loans, credit unions and traditional venture capital channels are a few of the many options available for small business funding. Each channel offers distinct terms and advantages that match a funding option to the specific situation of a small business. 

The Money to Main Street campaign will bring together the stakeholders and providers of local funding alternatives to make owners aware of options to get capital flowing into the segment. The tour kicks off in Phoenix on the 26th of March. 

Registration, conference sponsors and agenda details are available at this link, Money to Main Street.

Sum2's clients use Credit|Redi to determine financial health and creditworthiness. Credit|Redi provides users business assessment applications to optimize financial performance and create business plans that are sure to win the confidence of lenders and capital providers. Credit|Redi improves profitability, reduces risk and enhances creditworthiness.  

Sum2 has no commercial affiliation to any of the sponsors of this event.

Get Credit|Redi on Google Play here. Get Credit|Redi

Get Credit|Redi

risk; sme, credit redi, micro lending, private equity, SBA, Money to Main Street, capital formation, crowd funding, alternative financing, credit union, commercial loan, D&B, Accion, Phoenix AZ

SME Credit Channels Open

Golden Pacific Bank in California has created a new lending subsidiary to provide SBA loans for small mid-size business enterprises (SME). The program called SmartBiz uses an advanced technology platform that allows the bank to reduce the cost of borrowing and extend credit more efficiently to creditworthy SMEs. 

The lending platform was developed by the firm BillFloat. The technology enables SmartBiz to efficiently originate, process and close SBA loans. The cost of processing loan applications and credit decisioning time frames are reduced; positioning the lender to better serve the credit requirements of the banks SME clients. 

SmartBiz is looking to reduce a typical credit decisioning time frame from 90 days to less than a week. The bank believes its technology will be a competitive advantage; enabling the extension of longer term loans, lower rates, lower monthly payments and options currently available to small businesses. 

Golden Pacific is a community bank with $132 million in assets. Deploying Bill Floats lending platform will drive operational efficiency, increase the banks return on capital and generate significant fee income for the bank. 

Sum2's clients use Credit|Redi to determine financial health and creditworthiness. Credit|Redi provides users business assessment applications to optimize financial performance and create business plans that are sure to win the confidence of lenders and capital providers. Credit|Redi improves profitability, reduces risk and enhances creditworthiness.

Get Credit|Redi on Google Play here. Get Credit|Redi

Get Credit|Redi

risk; sme, credit risk, lending, private equity, financial health, risk assessment, credit repair, business planning and analysis, SBA loan

Half a League, Half a League, Rode the 600

So begins Alfred Lord Tennyson's famous poem, The Charge of the Light Brigade.  The poem bespeaks the glory and folly of Pax Britannica's imperial apex; yet still offers dear lessons for those dispassionate enough to listen.

Tennyson recounts the doomed charge of a British cavalry unit at the Battle of Balaclava during the Crimean War.  British Intelligence provided the Light Brigade Command incorrect information, under estimating the strength of the defending Cossacks.  As the assault commenced the Light Brigade soldiers realized they had been misled. The probability of defeating the entrenched Cossacks was an impossibility; but the Light Brigade rode on....

Half a league, half a league,

  Half a league onward,

All in the valley of Death,

  Rode the six hundred.

'Forward, the Light Brigade!

Charge for the guns' he said:

Into the valley of Death

  Rode the six hundred.

The Crimean War was one of the great mistakes in modern history. The costly war, an accident driven by the over-sized national hubris of fledgling nation states - Britain, France, Austria- Hungary and Czarist Russia- urgently arriving on the global stage, eager to exert a national will to carve a slice from a dwindling colonial pie. 

The Crimean War provides a few lessons for today's historical actors keen to relive the historical farce once again. The United States, Russia and the EU, all seemingly intent on escalating conflict across a volatile Eurasian region surrounded by Middle and Near Eastern instability. Surely a tinderbox, a conflagration awaiting; primed to spark from the flash point of resurrected Cold War animosities.  

I cite Tennyson's poem not as an allegorical reference to the deadly game unfolding in the Ukraine but as an example of the consequences of acting on bad information.  Business intelligence is an absolute critical component of an effective risk management program.  

The stakes in the evolving Crimean crisis are huge and the consequences of the conflict will loom large over world markets for an extended period of time.  SME's in the region will bear the brunt of the economic effects of the crisis.  Political instability has placed the regional economy into a tailspin.  Clashing armies are never good for business.

European SME's need to consider the impact of a disruption of Russian oil and natural gas delivered by Ukrainian pipelines.  How would such a disruption impact the price of energy commodities and industries that are sensitive to it?

What would be the contagion effects of a broader conflict?  What would be its impact in the Greater Caucasus, Syria and Iran?   Would a conflict in the Ukraine close access to the Black Sea and how would that affect exports and the economic stability of Turkey?

How would the Russian oligarchs react to sanctions and asset seizures imposed by the west? News services are reporting significant capital flight from Russia, a plunging bourse and a ruble at historic lows.  

These are but a few questions effective risk managers need to consider.  Seeking out and assessing information and how it will impact your business model is absolutely critical during times of acute macro risk.

Don't fall victim to the blind hubris of the Light Brigade....

Forward, the Light Brigade!'

Was there a man dismay'd?

Not tho' the soldiers knew

  Some one had blunder'd:

Theirs not to make reply,

Theirs not to reason why,

Theirs but to do and die:

Into the valley of Death

  Rode the six hundred.

Regional enterprises directly affected by the conflict and the international community of SME's with supply chain, export market or contagion risk exposures linked to the growing instability in the Ukraine need to assess these emerging event and  macroeconomic risk factors.  

Get risk aware with Macroeconomic Risk and Event App (MERA) on Google Play.  Its an Mobile Office app that runs on MS Office and Android.  MERA will help you assess heightening risk factors to profit from the opportunities shifting markets present.

Get Risk Aware

Risk: economic, political, market, supply chain , capital flight, commodities, contagion risk, Ukraine, Black Sea, Eurasia, Iran

Cultural Revolution at Apple: Steve Jobs Ego

This Marketplace interview is relevant to the tricky issues surrounding the transformation of business culture of SME's. Since the death of Steve Jobs, Apple has been struggling with transitioning its corporate culture into a post Jobs era. 

SME’s whose business brand and culture is often associated with the founders personality and ego creates transition problems when the founder leaves or refuses to alter the business model due to the inability or reluctance to change themselves. 

Apple has been phenomenally successful, and continues to be due in large measure to the culture of product and marketing innovation Jobs created. Apple remains incredibly profitable. It has a portfolio of “insanely great, world changing products”, a loyal client base and a healthy product pipeline. So some may ask, why make changes if it ain’t broken? 

Well in a sense Apple already is broken. Apple’s products and marketing panache has always been identified with Steve Jobs. In the public mind the Apple brand is synonymous with Steve Jobs. Jobs’ demise immediately decoupled Apple from his earthly presence and future managerial control. 

Though his entrepreneurial drive and spirit of innovation continues to be central to the Apple ethos, over time his absence diminishes its influence as market conditions forces changes on the company. 

I see this pattern often repeated in my work with SMEs. Beth Wood, from Mass Mutual put it well when describing family owned businesses "often steeped in tradition and not as flexible to change, tend not to have formal plans in place to respond to crisis. When confronted with challenges they just can't react fast enough.” 

Ms. Wood makes an interesting observation about the importance of business agility. The need to assess the rapidly changing market dynamics is a critical exercise that SMEs must undertake. Business as usual will not get it done. SMEs must begin to transform to better align its business model to rapidly changing markets. 

Family owned businesses or company cultures closely associated with a “cult of the principals personality” have difficulty overcoming the gravity of generational culture that inhibit and resist change.  SMEs will survive and thrive if they can identify and adapt to the emerging opportunities current business cycle create. 

A challenge for older SME's is to encourage cultures of innovation that fortify the will and resourcefulness to promote change. These qualities are key ingredients for sustainability and growth. Business as usual is giving way to a "New Normal," where adaptability to structural market changes drive asset appreciation and wealth creation. 

We honor the contributions and virtues of visionary business leaders like Steve Jobs. But we cannot afford to make them sterile icons that chain us to the nostalgia of the past. 

Get risk aware with our business assessment apps on Google Play. All of our Mobile Office apps run on MS Office and Android. Our apps help SME’s assess risk factors to profit from the opportunities shifting markets present. 

Get business assessment apps here:  

Get Risk Aware

risk: transition, exit strategies, change management, innovation, sustainability, sme

SME Credit Repair

As the US economy slowly emerges from the great recession many small businesses are looking upon battered and bruised balance sheets and income statements.  Before the downturn they looked young healthy and vibrant but the distress of the credit crunch, high unemployment and record business closures has taken its toll.  Receivables growing longer in the tooth each month.  Write offs of bad debt up.  Client defections, pinched profit margins and market erosion due to decreased buying power, business closures and clients going with competitors offering rock bottom pricing.  No the balance sheet doesn't look as healthy as it did during the salad days of the past decade but the good news is the business survived a damning business cycle.  

Time to conduct a credit analysis exercise to get the company financial statements back into shape.

Here are seven quick questions one needs to answer to assess an SME's credit worthiness. 

Management

Do your business leaders have the talent, experience, character, leadership, and knowledge of the business to succeed?  If not, what should be done to close those gaps?

Are the right people in the right jobs? Should people be repositioned to optimize fit and overall performance? Should you make strategic hires to improve your talent mix in critical functions across the firm?

Business

• What is the overall health and landscape of your industry? 
• Who are the primary and secondary competitors? How is their health? 
• What does the SWOT analysis reveal for your industry and competitors? 

Financials

• How healthy are your balance sheet and income statements? (Compare to previous financials over 1, 3, and 5 year periods.) 
• What are your pro-forma projections? (1, 3; 5 yrs) 
• What significant trends do you observe? 
• What should you be doing based on the trends you have identified? 

Use of funds

• Why do you need funding? 
• How will the funds be used - 90 days, 1, 3, 5 yrs? 
• (The key here is to describe in detail with specific usage, timing, and activities.) 

Sources of Repayment

• What are your firm’s primary, secondary, and tertiary income streams? 
• How reliable or likely are those sources going forward? Most importantly, are those revenues diversified and recurring? 

Customers and Suppliers

• What are the composition and attribution metrics? Most importantly, are there any concentration risks? If so, what can be done to mitigate them? 
• How healthy are they?
• What are the demographics driving both groups? 
• Where are they in their client or product life-cycles? 
• Where are your suppliers in your products and services value chain? 

Products and Services

• Ask the same questions listed for Customer and Supplier. 
• What are the consumer demand, utilization metrics, and trends for your existing offerings? 
• What new products and services are in your pipeline? How do you envision those new products and services impacting your financials (balance sheet, income statement, and statement of cash flows) and business strategies going forward? 
• What are your competitors offering? How does that impact your business?

This cursory assessment will get you started.  

Sum2's clients use Credit|Redi to rate company credit worthiness and conduct business analysis to optimize financial performance and create business plans that are sure to win the confidence of lenders and capital providers.

Credit|Redi used by effective SME managers to improve profitability, credit worthiness and grow the confidence of lenders and shareholders.

Get Credit|Redi on Google Play here. Get Credit|Redi 

Get Credit|Redi

risk; sme, credit risk, lending, private equity, financial health, risk assessment, credit repair, business planning and analysis

Tax Deductions and Tax Audit Risk

The filing deadline for filing taxes is fast approaching. Small Mid-Size Business Enterprises (SME) need to be aware of all the deductions afforded to them by the tax code.  

Our friends from Balboa Capital sent us this reminder about the Section 179 Tax Deduction...

...There have been a lot of questions surrounding the Section 179 deduction for 2014*

…According to the IRS, the Section 179 tax deduction limit as of January 1st 2014 is $25,000. This is a sharp drop from last year's limit, but it still presents you with an opportunity to deduct a certain amount of your equipment, technology and software purchases when it comes time to do your business taxes. This means you can buy or lease up to $25,000 worth of equipment and deduct its cost in 2014, providing you place it into service this year. You may also elect to use Section 179 with more than one piece of equipment, as long as the total deduction amount does not exceed $25,000…”  

For a small business owner this is a significant tax savings. Think of what $25,000 can do for a small business owner? It is a significant capital contribution to the business. Effectively deployed it has the potential of funding a new business initiative (new software application, marketing program, delivery vehicle) or it can just as well cover a personal expense (think tuition payment for the kid in college) and this timely advice is well received.  

As the tax filing deadline approaches it is important to keep in mind the various audit risk factors certain deductions raise with the IRS. In the past the agency has published guidelines agents utilize to risk profile tax returns. Claiming these deductions heightens the risk of an audit by the IRS. It is a critical that SMEs are aware of these audit risk factors and incorporate this intelligence into its risk management program.  

Sum2 developed the IRS Audit Risk Program (IARP) to provide SME’s an audit risk road map to mitigate audit risk factors. IARP outlines focus areas of heightened agency scrutiny targeting specific issues that are reported on tax filings. IARP users gain the confidence and surety that audit risk factors are being effectively managed.  Get Tax Audit Aware with IARP.

Get Tax Aware

*Be sure to consult with your tax advisor for information on the Section 179 eligibility requirements that affect your business…

risk: tax code, tax audit, regulatory compliance, accounting, legal, Section 179