Masonry Magazine February 1987 Page. 64
GOLDBLATド
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1987 CATALOG
Insurance
Insights...
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Deeper Look at Your Financial Statement
Offered by New Report
Released by the Independent Business Institute, Report #601 shows a business owner how to dig beneath the surface of his/her financial statement, first to uncover the true profit of the business, second to determine the stockholder's/owner's return on investment, and third to approximate the value of the business on the open market.
The report points out that a firm's true profit is clouded by depreciation, discretionary expenses, even the owner's salary and fringes. Using an example, the report reconstructs a firm's true profit, step by step. With the profit determined, the return on investment then follows-and is often a real surprise, since many businesses which pay their owners generously are still very poor investments.
The report goes on to show how a business valuator works with the true profit (earnings) and applies a multiplier, based upon a buyer's perception of risk, to arrive at a nominal "value." To this is added underutilized assets (usually excess inventory and/or equipment) and from it is subtracted cash needs and liabilities which a buyer would consider abnormal. The result is the value of the business.
The point of the report is that financial statements have uses far beyond showing them to the bank and using them to fill out tax returns. They are-or, at least, can be an instrument panel for the business owner.
The report is available to business owners, managers, and their heirs for $1.00 to cover postage and handling. Send to: Independent Business Institute, PO Box 159, Akron, OH 44309. Ask for Report #601.
Water Damage Can Soak You
Recently, when a fire broke out at the Palos Verdes shopping mall in Southern California, many shop owners feared their stores would be destroyed by the flames. When the smoke had cleared, owners found damage totaling almost $2 million, most of which was caused by water that poured from the automatic sprinkler systems in the stores beneath the blaze.
Is your business protected against water damage? It depends on the cause. Let's look at the five situations in which you could suffer a loss:
If the damage is caused by water used to fight a fire, it is considered part of the fire damage and is covered by your Standard Fire policy, for the maximum amount of the policy.
If the water comes from an automatic sprinkler system, the damage is covered if the sprinklers are activated by the fire. However, if the sprinklers just leak, because of some problem in your sprinkler system, your Fire policy would not cover resulting damage. You can purchase Sprinkler Leakage insurance or an all-risk Property policy that includes such coverage.
If damage is caused by a rainstorm, you are insured as long as the damage to the building which allowed the rain to enter is covered under your Business Property insurance. For example, if wind damaged your roof so that rainwater soaked your office, then you would be protected for the water damage.
If damage is caused by a flood or tidal action, you will probably not be insured for the loss. To obtain this coverage, you will usually need a separate Flood policy, obtained from your insurance agent through the National Flood Insurance Program.
If damage is caused by water that has backed up from sewers and drains, you are probably not covered. Protection for this type of loss is excluded from most Business Property policies.
Water damage can be expensive. You should know what kind of protection you have, in the event that fire or rain should strike.-Insurance & Risk Management Newsletter, Commercial Insurance Service. Inc., Charleston, W.Va.
Tax Tip
SMALL-COMPANY OWNERS should consider converting to "S" corporations, according to accountants at major firms who have studied the new tax law. (A Subchapter S corporation is taxed like a partnership, but still enjoys corporate benefits like limited liability and easy transfer of ownership. In other words, double taxation of profits is avoided under this set-up.) Many companies preferred the old form prior to the change in the tax law because the corporate tax rate they paid, often well below the 46% maximum, was much lower than the highest personal tax rate of 50%. They paid less in tax and were able to accumulate capital for reinvestment.