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Renting Money Rates

December 11, 2018

The previous blog generated more comments that I usually get but some said they don’t really understand the issues of interest rates and long term debt. Well, it is confusing and I even said that in the blog. Here are some more comments.

The previous blog tried to oversimplify this very complicated topic. I used the 10 year treasury rate as a measure of long term growth activity. I believe that while it is valid there are many other factors that affect interest rates and in some respects are devoid of capital spending purposes.

    • The federal debt is growing daily with signs of faster growth. The debt is funded by borrowing and that means the issuance of bonds. As the government’s debt needs grow this will increase the supply of Treasury bonds and this will tend to push up interest rates. The only thing that would keep rates from growing is a flight to safety such as what occurred in the recession of 2008/2009 and for a number of years thereafter.
    • There is a flat yield curve. This means that the short term rates are pretty much the same as the long term rates. Normally the longer term rates are higher to reflect the greater risk due to time until maturity. I went over the reasons for this in the previous blog and refer you to that.
    • Flat yield curves are not normal and it will have to change, either by the short term rates dropping or the long term rates increasing. With the Fed dug in at higher short term rates and the market dug in without demand for longer term funds there will be a standoff for a while. I believe it will change when the effect of the increased federal borrowing takes effect, and the long term rates increase.
    • Higher rates retard growth, so the near future portends lower growth and possibly a trending toward a recession. Inflation (as the Fed suggests) doesn’t appear on the horizon.
    • I posted blogs with more details on August 9 and 16. Here are links to them.

The above are some thoughts I have but I certainly have no idea what will happen. The intention is to share ideas with you. Enjoy!


Renting Money

December 6, 2018

The payment for renting money is called interest. People usually rent, or borrow, money when they need it or think they can get a greater return than the cost.

When a lot a people at the same time want to rent money the cost, or interest, increases. When there is a reduced demand the interest rate decreases. When there is ambivalence the rate usually gets stuck with little movement.

Money serves purposes, some of which have short term and some long term uses. The rates for the short term users are being driven right now by the Federal Reserve that took actions to cause the short term 3 month Treasury rate to grow this year from 1.4% to 2.4%. The beginning of 2018 rate was up from the .46% at the beginning of 2017, so we see great increases here. The Fed’s increases were based on its perception of the strength of the economy and is an attempt to fine tune it so that inflation is curbed. I don’t really understand the thinking here but neither do most other people, including probably the Fed governors. However, that is not what I want to talk about now.

The 10-year rate was 2.89% on Tuesday which is up from 2.41% at the beginning of the year which was pretty flat for 2017 that began at 2.45%. This to me is significant. Long term borrowing as reflected in the 10-year rate indicates, to me, little demand for money. This means that businesses, and many governments, are not borrowing for long term capital projects which further indicates that growth or a reasonable ROI (return on investment) is not expected. This is somewhat frightening when considering the low interest rates, low energy costs and what seems to be full employment without accelerated wage increases creating conditions where businesses should be looking toward the future for growth. The long term rate is not controlled by the Fed’s actions, but more so by the market, and the market is not driving the rates up. And without this demand I don’t understand how there can be nascent inflation that the Fed is “fighting.”

Obviously there are exceptions such as the massive new offices, but in the aggregate, I do not see the volume of infrastructure building that would be manifested by higher long term interest rates, and that would buoy the economy in the near future.

These are my own opinions and while I can write a lot more, and previously have, on this topic, my purpose is not to be a political pundit, but to present ideas and information that my readers could hopefully learn a little more about some of the real confusing issues of the day. Growth and interest rates are related and are concerns of those that manage businesses, investors and to many others and I wanted to use today’s blog to point out some concerns I have in a way that I don’t see too often.

Ed Mendlowitz

Managing with the right financial tools

December 4, 2018

Managers have many functions. A major tool is having the right financial data. Unless you are an accountant or have an MBA, not many managers know what to ask for, let alone how to use what they get. Here are some suggestions.

  1. Meet with the accountant, controller or whoever will be providing the data to you and discuss what you are trying to accomplish and what you might need from them to assist you. A skilled accountant would be able to help you define what you need and how you could use it.
    Make sure what you receive is user friendly. This means that it can quickly be understood and is relevant to what you are doing. Accountants can literally provide you with anything you need or ask for. The problem comes with understanding it easily and using it as a tool for action.
  2. Keep in mind that the data you are given is a tool and should not be designed to make an accountant out of you. Regardless of your level of financial sophistication, let the accountant lead the discussion. If you reach a point where you do not feel they are “getting it” as far as your needs, tell them, or ask them to reframe what they are suggesting, or even suggest starting over. You are the “customer” and when they leave, you must be able to use it.
  3. Whatever you receive and however you use it, and particularly if you are successful with the data, schedule a meeting about a month afterwards to review what you are getting and how it is helping you. Sometimes the first step is a baby step to get you started, and the review can bring you to the next level which might provide ever better information.
  4. Timeliness of the information is of upmost importance. Whatever you get should be as close to real time as possible. If you cannot get it timely, find out why.
  5. Occasionally the reasons have to do with reconciling what you are given while the unreconciled amounts would serve just as well.
  6. It can be very helpful to getting what you need to have the financial person meet you on the production floor or where you will be applying what they supply you with. The visual meeting can create aha moments for the financial person to be able to help you get what you need.

Managers need information to manage and control the areas they are responsible for. Understanding what you need and getting it in a user-friendly format can make managing much easier.

If you have any comments or questions, do not hesitate to contact me at Do not forget to include your phone number for a call back from me.

“The Goal”

November 29, 2018

The Goal introduces the theory of constraints as a management technique with over 7 million copies of The Goal by Eliyahu M. Goldratt and Jeff Cox having been sold since it was first published in 1984. Last year a graphic version was published containing the full essence of the original which is still relevant and which I have been recommending to clients as well as using it in my practice.

The Goal has been written as a novel with people running manufacturing operations as its target audience. However, the concepts can apply to any endeavor where there is multiple handling.

The Goal refers to the goal of a business which is to make more money [given adherence with social concerns and responsibility and being a good “citizen” and neighbor]. The book’s concept is quite simple: Identifying what is blocking the business from achieving its goal of making more money and eliminating it. That block, or bottleneck, is referred to as a constraint which is any factor that prevents a system from achieving a higher level of performance with respect to its goals. The Theory of Constraints (TOC) was developed as a management philosophy directing focus on identifying and then eliminating a system’s constraints.

TOC can, in fact, be applied to any type of organization—for-profit, not-for-profit, small, large, manufacturing, service and government. It can also be applied to an entire factory floor or individual team. Some types of constraints include physical, policy, and paradigm and examples include capacity, resources, capability, rules, regulations, measures, assumptions, and beliefs. In order to succeed, an institution must be able to overcome the potential of a wide array of bottlenecks.

TOC offers tools in three different areas: 1) Thinking processes that provide the tools necessary to identify the core problem or bottleneck and deal with it effectively; 2) Performance measurement allows better management of the constraints by determining the level of efficiency within the system; 3) Planning and control systems (logistics) deal with the completion of each process at the right time to coincide with the organization’s schedule.

The authors also claim that part of the problem is traditional accounting systems that measure cost accumulation versus throughput which they define as the rate at which the system generates money through sales. Businesses typically use cost accounting to make decisions including product mix, introduction and discontinuance, make verses buy, pricing, bidding on an order, transfer pricing, and profit-and cost-center results. The book suggests that different measures are needed to better understand how to use and benefit from the TOC.

There is more to what the authors write about, but if you believe from this brief summary that you would want to learn more about TOC, the I recommend you read the book. I have found that once clients become aware of the TOC, it triggers an aha moment and steps are usually implemented that get results pretty quickly. If you want to discuss this after you read the book, contact me at

My 260th Column at

November 27, 2018

Yesterday I posted the 260th weekly column at completing five full years. Between writing a twice a week blog here since Feb 2012 and that column, it keeps me pretty much on my toes to come up with ideas, which so far, I’ve been fortunate to being able to do.

The AT column is autobiographical and is directed to accountants trying to manage their practices better, but in some manner it applies to all businesses. This blog is directed to clients where I address their concerns helping to reduce my fees while making them a more knowledgeable client which is much better for them, and me, in the long run.

The theme of yesterday’s AT column is to not pass up opportunities that come your way. I have been pretty successful but not because I sought out special situations, but rather because I took what was in my path. That column presented ten illustrations that show the fortuitous nature of some of my successes and how I followed through with them. You are welcome to read that column and here is a link:

Last week two colleagues told me about situations they passed up on, while also relating the stagnation of their practice. One told me she was given a resume of someone that seemed perfect for her firm, but while she was overloaded with work, she did not think she could fully use that person until the beginning of tax season – around February 1. When I was in that position I would have hired that person to relieve some pressure until then. The cost of the two months extra salary could not make too much of a dent in the firm’s profits; while freeing up the owner to get things in better order to start tax season and perhaps enable her to do extra yearend tax planning for some clients that need it and who would pay for the additional services. The other had a request for a fixed fee proposal to perform an audit for a company that the accountant did not feel he knew enough about the industry. That happened to me many times and do you know what I did – I worked my ass off to learn as much as I could including consulting with colleagues. Two lost opportunities. A shame.

Part of being successful is not passing by opportunities that fall in your lap.

In case you are interested in part of my life as an accountant, the first 156 columns have been published in a book you can purchase at and claim a 25% discount by entering coupon code: EdSentMe.

Happy Thanksgiving

November 20, 2018

Thursday is Thanksgiving, a day we enjoy with our family and hopefully give thanks for the blessings bestowed upon us. Just being with family is a blessing. We should also give thanks to our service men and women stationed here and all over the world who put themselves in harm’s way to maintain the freedom we have living in a country with security, liberty and justice for all.

Previous blogs on Nov 20, 2012, Nov 27, 2014 and Nov 22, 2016 share some thoughts about Thanksgiving. Today I want to share some words from the Book of Psalms that go back some 3000 years.

…we will give Thanks to Your name forever.
Psalm 44:8

It is good to thank the Lord and to sing praise to Your name…
Psalm 92:1

Enter His gates with thanksgiving and His courts with praise;
give thanks to Him and praise His name.
Psalm 100:4

Give thanks to the Lord, for He is good; His love endured forever.
Psalm 106:1

Have a happy Thanksgiving and remember why we are celebrating it!

Ed Mendlowitz

Task list for when you sell your business

November 15, 2018

Steps involved when selling your business. Buyers can also use this list as a time line and road map of the steps that are expected to occur and what is expected of them.

  • Be sure you want to sell
  • Be doubly sure you want to sell
  • Have your spouse or partner on board with what you will be doing
  • The seller needs to be made aware that they will have to provide information about their business and won’t be able to hold back anything
  • Engage a transactions based attorney
  • Notify your accountant and bring him or her on board as soon as you start the process
  • Prepare a transaction information sheet with some basic information about the business
  • Talk to buyer and determine interest level and if you think they are serious
  • Have buyer provide some sort of assurance they have funding available
  • Have your attorney prepare a confidentially or nondisclosure agreement letter for the prospective buyer to sign before you give them anything
  • Note: It has been our experience that keeping these negotiations confidential is very difficult at best, so be prepared to deal with questions from interested parties that tell you what they heard and ask for verification, or reassurance
  • Possibly engage an M&A advisor, investment banker, or business broker to either advise you or find a buyer or buyers
  • Have a valuation specialist determine the value and help you decide on the asking price and what you should settle for and the amount you should not go below, and the terms
  • In many transactions the terms can be more important than the actual transaction price, so pay attention to what you will be getting, and when
  • Your accountant should model out the tax methods and consequences of the sale
  • Engage your accountant to project what you would net after all costs and taxes from the sale and the possible cash flow you would end up with afterwards
  • Have the buyer give you a letter of interest laying out suggested terms – this is the start of the negotiation progress
  • Once the letter of interest is received you should start assembling the information the buyer would need to have the due diligence performed. Usually the buyer will give you a listing of what they would like, initially. Note that we have such a list that we usually give to our clients when the process starts
  • When a deal is agreed to have the buyer present you with a thorough letter of intent (“LOI”). This is the start of serious negotiations and should be handled with the upmost focus and interest
  • Your attorney would review the legalities with you and if necessary will suggest changes
  • Once the LOI is signed your attorney should start preparing the contract of sale.
  • While this is being done, issues will be raised that haven’t been previously discussed. These include the need for the buyer to review employment contracts, independent contractor and consulting arrangements, tax compliance filings, leases, licenses, trademarks and patents, vendor or customer contracts, warranties, regulatory issues and myriad other items that you likely haven’t thought about in years, if as all
  • You will need to discuss with the buyer whether any employees will be let go and the timing and who will be responsible for severance payments
  • The contract drafting will cause a new round of negotiations – not as serious as the previous negotiations, but the price could be affected by the results of this. Included in this will be the amount held in escrow and how payments would be released and then paid out
  • Other prospective buyers will need to be told that you are selling to someone else
  • You have to decide which of your personnel, if any, you will inform about what is going on, or if you will keep it secret from everyone
  • If there is an earn out or deferred payments or some ownership that is retained, that will be covered more thoroughly in the contract, and this is usually negotiated as part of the purchase price
  • If there are to be deferred payments, decide on the type of security or collateral
  • If there are deferred payments you should consult with an insurance agent to determine if a life insurance policy on the buyer is necessary and if it can be obtained. You will also need to know how those payments will be taxed
  • The interest rate on deferred payments will also need to be determined. If no interest is provided for, there would be imputed interest for tax purposes – make sure you understand how this would work
  • The buyer will commence the due diligence process. You will need a “team” to assist you with this
  • Some more negotiations and contract amendments
  • The contract could be signed before the due diligence starts, during the due diligence process or at the closing. This depends on the thoroughness of the letter of intent and timing of the sale
  • When the closing takes place, you will get your money, usually a certified check, attorney’s escrow check or a wire to your bank, and any notes for deferred payment
  • Pay all your professionals and those assisting you on your team
  • There likely will be some post-closing adjustments that will need to be negotiated.
  • Usually the contract would call for indemnification of undisclosed liabilities in excess of an aggregate amount – watch for this
  • If you sold the assets of the business, rather than the corporate stock or ownership interests, you will need to wind down and eventually liquidate that entity. This can take a few months or a few years depending on the circumstances. You will need your accountant and attorney to review this with you
  • If you sold the assets of an S corporation or another pass through entity, and had outside basis, you might need to liquidate that entity in the same year as the sale to be able to offset any gains with that basis. This is a very complicated tax move and you must be advised about this before the transaction is consummated
  • Don’t plan your vacation right away – you will need to hang around a while to assist in the transition to the new owners
  • Plan a nice long vacation about three months after the closing, and let the buyer know well in advance of your lack of availability during that vacation

Some deal point that come up that aren’t usually negotiated initially

  • Guaranteed net worth of the entity that is the buyer
  • Financial statements usually need to be on GAAP, but many companies use a modified GAAP or the income tax basis. It needs to be made clear what method the reports presented are on and that they should be acceptable as such, without GAAP adjustments
  • Software licenses for every computer

This is a pretty good list, but every deal is different and brings forth new sets of issues, things to do or what to provide to the buyer. Lou Young, director of client services and a valuation specialist and consultant, assisted in this blog and he can be reached at As always, contact me with any questions at